When you sell an item through a business or on eBay, Uncle Sam will always want his cut. So when you sell a stock or any investment, you’re going to owe the government a percentage of your profit (or gains).
Selling a financial asset (stocks, bonds, ETFs) for more than you paid for it will earn you “capital gains.” Like everything else, you have to pay taxes on your capital gains called “capital gains tax.” While the capital gains tax rate is usually lower than your income tax percentage, it’s still a pain to part with money you made on an investment. After all, you worked hard for it by making a smart investment, and handing it over to the government isn’t fun.
Fortunately, there are legal ways to avoid paying this tax. No, this doesn’t mean hiding your money in an offshore account. Instead, you can offset that tax with other investments, or even invest the money again. Before you send your taxes off this April, check out this recent video on capital gains tax from The Washington Post. It could end up saving you more than you know.
If you reinvest your capital gains in a 401k or IRA, you’re going to have to pay taxes on those investments in the future. You’re also going to want to talk to your accountant or tax professional before you make any changes to your taxes. In the end, however, if you balance your gains and losses or reinvest your gains, you could end up owing a lot less than you thought.