Long-term capital gains have favorable rates, over ordinary income.
Profits from the sale or exchange of capital assets held over a year are generally taxed at 0%, 15% or 20%. There’s also the 3.8% surtax on net investment income of single filers with modified adjusted gross incomes of more than $200,000/$250,000 for joint filers.
The rates are based on set income thresholds that are adjusted annually for inflation. For 2021, the 0% rate applies to individuals with taxable income up to $40,400 on single returns, $54,100 for heads of household and $80,800 for joint returns.
The 20% rate starts at $445,851 for single individuals, $473,751 for head-of-household filers and $501,601 for married couples filing jointly.
The 15% rate is for filers with taxable incomes between the 0% and 20% break points.
This is how Warren Buffet may pay more in taxes that his secretary, but her tax rate is higher.
Call for assistance with your tax planning to take advantage of this situation.