Making money is exciting — keeping it is even smarter. Without smart capital gains tax planning, taxes can eat into your profits. I want to give you a quick rundown of what, if any capital gains taxes will apply to your appreciated assets.
Fully understanding potential tax ramifications of selling a stock or fund can help you strategically plan:1- Whether you should sell an asset?
2- When you should sell that asset?
What Are Capital Gains Taxes?
Capital gains tax applies to profits earned on any investment gains held in taxable accounts. This is typically your Individual, Joint accounts, and Trust accounts. The tax rates depend on your holding period and income level. What many people overlook is that you’ll pay a federal tax rate — and, if you live in a state that taxes income, a state tax rate as well.
Short-Term vs. Long-Term:
Short-term capital gains are on assets held for less than 12 months. Short-term gains are taxed at ordinary income rates which in 2025 range from 10% – 37%. Keep in mind that your “gain” gets added to your income for the year… More on this in a minute.
Long-term capital gains are on assets that are held longer than 12 months. These assets benefit from lower federal tax rates of 0%, 15%, and 20%. They pay state income tax the same way that short-term gains do.
It’s worth noting that capital gains are owed whether you reinvest the funds in your account or withdraw them. Selling something at a profit creates a taxable event.
What High Earners Should Know
High-income earners are also subject to the NIIT (Net Investment Income Tax), which is an additional 3.8%. For 2025, this applies to earners who have a combined investment income (capital gains, dividends, etc.) and MAGI of over $250,000.
To summarize: if you sell a stock or fund, you may have federal, state, and NIIT taxes due on the gain.
When Are Capital Gains Taxes Due?
Capital gains taxes are due when you file your return the following year. Unlike IRAs, where taxes can be withheld, taxable accounts don’t withhold gains — so it’s smart to set aside funds at the time of sale. At PureVest, we help our clients understand what their potential tax liability from capital gains will be. A good practice is to isolate the potential amount owed for taxes from market fluctuations until taxes are filed.
Smart Planning Strategies for Minimizing Capital Gains Taxes
– Avoid selling an asset in month 11 if you can wait 30 days for it to qualify for a long-term gain. If you sold a stock with a $100,000 gain after 11 months in the 37% bracket, your tax bill could be $37,000. Waiting one more month reduces that to $20,000. This is because after 1 year the highest federal bracket is 20%. That is a 45% savings on the tax liability or $17,000 extra in your pocket. (*state taxes & NIIT may apply)
– Consider spreading the sale of an asset out over time. Capital gains get added to your income which can push you into a higher tax bracket.
– However, I do believe you should never avoid selling an asset just because you will owe taxes after the sale. If you owe capital- gains taxes… Congratulations! You have more than you started with. Just be strategic about selling.
– Capital gains can be offset dollar for dollar with losses incurred in the same calendar year.
– Calculating your tax liability if you decide to sell an asset can also help you determine if you want to sell or hold. This is referring to a time when the market is pulling back. If you believe the pull-back is temporary and still like your asset long-term, selling and jumping back in may cost more once you factor in taxes.
– Holding indefinitely is also a strategy… Your heirs will receive a step-up in cost basis and can potentially avoid paying any capital gains taxes on the inherited funds.
With the right capital gains tax planning, you can keep more of your hard-earned money working for you — and less going to taxes.. If you want more information, or to walk through some specific scenarios, reach out to PureVest as we are always here to help.