Patience On Gains Could Lead To Better Returns

It's almost the end of the year and with the Dow Jones Industrial Average up almost 15 percent you may be thinking of taking some gains to put in your Christmas stocking.

But before you hit the sell button, you might want to consider how you might keep even more of those gains by waiting just a few more days. Looking ahead to what could be 2017 tax law changes, you may want to review any sale of an asset for capital gain purposes for tax planning at an individual tax level for 2016 to see whether it could be more advantageous to report the sale in 2017.

Two plans are in talks to possibly be implemented early in 2017, one proposed by President-elect Donald Trump, and one proposed by Speaker of the House Paul Ryan.

Under the Trump plan, the current capital gain taxation structure of a tiered 0-20 percent tax rate on qualified dividends and capital gains based on the taxpayer's bracket would be retained. However, the plan would simplify the tax bracket structure for married filing jointly taxpayers to $0-$75,000 with a tax rate of 12 percent and capital gains rate of 0 percent, $75,000-$225,000 with a 25-percent tax rate and 15-percent capital gains rate and more than $225,000 with a 33-percent tax rate and 20-percent capital gains rate.

Instead of starting with a capital gains rate of 0 percent, the Ryan plan would start at 6 percent and top out at 16.5 percent. For married filing jointly taxpayers the brackets, tax rates and capital gains rate would be: $0 to $75,300 with a 12-percent tax rate and 6-percent capital gains rate; $75,300 to $231,450 with a 25-percent tax rate and 12.5-percent capital gains rate and $231,450 and up with a 33-percent tax rate and 16.5-percent capital gains rate.  

Most important, the Trump plan would also eliminate the 3.8-percent Net Investment Income Tax, which includes non-business capital gains, interest and dividend income, rental income and royalties. The elimination of the 3.8-percent tax could be the most important part of the equation since it would effectively reduce capital gains taxes next year even if the capital gains tax rate and income tax brackets and rates went unchanged.

In might be good to practice the same strategy of patience when selling as you did when buying. Waiting a few more weeks to book those gains may be the more prudent approach and could realize a greater return on your investments.