Pewaukee, Wis. – As the nation’s economic recession has continued and unemployment benefits have run out for many workers, cashing in stocks or selling property have sometimes become options of last resort for people to make ends meet.
The good news – admittedly, the term fits loosely – is that taxpayers in the bottom two tax brackets (10 percent and 15 percent) will not be taxed on long-term capital gains or qualified dividends from these transactions.
This Internal Revenue Service policy – 0 percent tax on certain capital gains and dividends – was adopted in 2008, and extends through 2010. It largely flew under the radar, though, until unemployment skyrocketed in the past year, said Tom Hicken, a tax accountant with Jannsen & Company, S.C., in Pewaukee, Wis.
“This is a huge opportunity that more taxpayers should know about,” Hicken said. “If someone lost a job and needed to sell stocks or property, and they realized a gain by doing so, they could save significant money by not having to pay tax on those gains.”
The 0 percent tax presents a unique incentive for many people to adjust their income to avoid the third tax bracket, which is 25 percent, Hicken said. Taxable income limits in 2009 for the 15 percent bracket are $67,900 (married) and $33,950 (single).
The 0 percent tax applies to qualified dividends – such as on a typical U.S. corporation - or capital gains on an asset(s) held more than one year. Investors can find their qualified dividends in Box 1B of IRS form 1099-DIV.
“With so many people out of work and having to fall back on investments or other holdings to pay their bills, the timing of this tax break could not be better,” Hicken said. “I hope that as many as possible learn about this so that they can plan accordingly and keep more of their money. They certainly need it more than ever.”
