Income Tax Planning is one of Whitford's core services. Our ‘Tax Planning In Action’ series can show you ways to reduce the amount of money you pay in taxes over your lifetime.
Let’s break down how this is possible:
- In 2025, the seven Federal tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Your taxable income and filing status determine the rate of tax that you will pay.
- The long-term capital gains tax rate for those in the 10% and 12% tax brackets is 0%. To qualify as long-term, the assets in the portfolio must have been held for at least 12 months before the sale (see Part 2 of Tax Planning In Action for more on the different capital gains tax rates).
- The 12% bracket for a married couple filing jointly (MFJ) goes up to $96,950 of taxable income, $96,700 of this is not subject to tax. (Oddly, there is $250 left in the 12% bracket that would be taxable at 15% for capital gains, maybe an IRS oversight!)
- The standard deduction for MFJ filing status is $30,000, plus an additional $3,200 if both people are over age 65, for a total deduction of $33,200.
$96,700 non-taxable long-term capital gains
$33,200 standard income tax deduction
$129,900
Summary - If the couple’s only income is $129,900 from long-term capital gains from their investment portfolio, they will pay $0 in Federal taxes! In this example, the $96,700 in capital gains is not taxable and neither is the standard deduction amount.
If the couple had income from other sources, such as interest, dividends, taxable Social Security, or a pension, etc. they would need to reduce the amount of long-term capital gains in order to stay at the same combined income level of $129,900 (and $0 tax). Also, many states tax capital gains as income, so they could owe some tax at the state level.
Are you taking full advantage of the current tax code?
Note: Investment returns are hypothetical and do not reflect any specific investment or investment advice.
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