Report: Higher Capital Gains Taxes Won’t Affect 75% of Taxpayers

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Unless you’re among the wealthiest Americans, you probably don’t have to worry about how an increase in capital gains taxes will affect your finances. Around three-quarters of U.S. stock-market investors aren’t even subject to capital gains taxes because of the types of accounts they own, according to a new note from UBS.

See: Capital Gains Tax Rates — Here’s What You Need to Know for Tax Year 2020
Find: 5 Tax Mistakes Made by Rich People

As CNBC reported on Monday, President Joe Biden is expected to propose raising the top federal capital gains tax to 39.6% from the current 20%. But roughly 75% of investors own U.S. stock in accounts that aren’t subject to a capital gains tax, such as individual retirement accounts and 401(k) plans. Endowments and foreign investors are not subject to capital gains taxes, either.

The other 25% of investors own stock in taxable brokerage accounts that would be subject to capital gains tax. However, some of them won’t necessarily get hit with a higher capital gains tax, either, if they follow the right strategy.

As the UBS note said: “U.S. taxpayers who may be affected by the plan can consider various strategies, such as harvesting capital gains ahead of any changes, or deferring stock sales until earnings fall below [$1 million].”

See: What Tax Loss Harvesting Is and How to Use It to Reduce Gains
Find: 9 Legal Tax Shelters to Protect Your Money

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Biden’s proposed hike is expected to only affect taxpayers with $1 million or more in annual income. As recently as 2018, just 0.3% of the 154 million people who filed taxes that year fell into the highest tax bracket, according to CNBC.

Worries about how a higher capital gains tax will affect the stock market are also overplayed. UBS pointed out in its note that the last time capital gains taxes went up was in 2013. Although the tax rate climbed nearly nine percentage points that year, stocks overall gained 30%.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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