Why The Myth of The Miserable Lottery Winner Just Won’t Die

On Friday night, Mega Millions held a drawing for a whopping $1.28 billion jackpot, the third largest in American history. Late in the evening, officials announced the winning numbers—13-36-45-57-67, with a Mega Ball of 14—and on Saturday morning, said that one jackpot-winning ticket had been sold, in Illinois.

One in eight American adults play the lottery at least once a week, and almost half buy at least one ticket a year. Unfortunately, even if you bought your annual ticket sometime in the last few days, that winner is probably not going to be you—unless you happen to be that lucky Illinoisan. Maybe that’s okay, you tell yourself. Don’t lottery winners end up broke and miserable? It would be great to be rich, but I don’t need $1.1 billion.

Except most lottery winners do not wind up broke, or miserable, or bankrupt. Stories about regretful lottery winners are trotted out whenever jackpots get big. But as much as jealous losing bettors might want to think that winners’ unfathomably good luck is balanced out by bad, most people who strike it rich this way settle into lives of quiet, comfortable anonymity.

And yet, the myth of the miserable lottery winner persists. The history of this myth reveals a longstanding national discomfort with gambling, and exposes deep-seated cultural beliefs about the connection between wealth, work, and merit.

In the United States, media coverage of lottery winners is nearly as old as lotteries themselves. The first American lotteries were held in the 17th century to raise funds for colonial infrastructure projects. Lotteries appealed to gamblers at the time for many of the same reasons they are popular today: they offered a chance to dream of instant affluence, and provided a rare opportunity for the poor to hit it big.

But starting in the colonial period, a specific genre of human-interest story became widespread: lottery winners who wound up broke, beleaguered, or worse. From the 18th through the 20th century, newspapers in the United States recounted the misfortunes of lottery winners from across the globe: A baker and his pregnant wife murdered for his winnings by an employee (Paris, France, 1765). A squandered jackpot invested in a failed shipping venture (Newburyport, Massachusetts, 1883). A winner dying of a heart attack immediately upon hearing news of his windfall (Bilbao, Spain, 1934).

These stories remained common as states began legalizing lotteries in the 1960s and 1970s. With so many lottery prizes being handed out—and so many winners’ stories to choose from—journalists began to frame miserable lottery winners not as unique curiosities, but as a trend. Jackpots at the time were small, and some winners reported being hounded for money from strangers and family members.

Partly due to the federal government’s semi-adversarial approach to state-run gambling, many also faced problems with the IRS. University of Buffalo sociologist H. Roy Kaplan interviewed around 100 early lottery winners in the mid-1970s and found most of them happy, despite these challenges. Nonetheless, a narrative was born. “Instant millionaires: Dream becomes nightmare for some,” one 1976 headline noted. “Million-dollar winners find reasons to cry in their champagne,” read another.

The myth has been with us ever since. With the rise of rollover jackpot games in the 1980s, prizes got a lot bigger, and the tragedies suffered by some winners became even more dramatic: Jack Whittaker, a West Virginia man, won $314.9 million in 2002. He was robbed multiple times and lost a granddaughter to a drug overdose, an event he blamed on the windfall. Abraham Shakespeare was killed by an acquaintance three years after winning $30 million in 2006.

William Post won $16.2 million in 1988 and spent lavishly. He quickly faced legal troubles, and his brother tried to hire someone to kill him and his sixth wife. Post died broke in 2006. A headline from the satirical website The Onion, the day after a record-breaking 2012 jackpot, captured the prevailing wisdom about lucky lottery players: “Powerball Winners Already Divorced, Bankrupt.”

But unlucky winners like Post, Whittaker, and Shakespeare are the exception, not the rule. Their stories are repeated so often not because they are representative but because they are some of only a few examples of regretful winners. The vast majority of jackpot recipients collect their novelty checks at press conferences and are never heard from again.

The non-miserableness of lottery winners is borne out by studies from across the globe. Research into winners in Germany, Singapore, and Britain found that winning the lottery does, in fact, make people happier, and a 2004 study found that 85.5 percent of winners in Ohio kept working, a sign of how many carried on with their normal, pre-jackpot lives. A commonly cited statistic about the percentage of lottery windfall recipients who wind up bankrupt—often attributed to the National Endowment for Financial Education—was refuted by the organization in 2018. Money, it seems, really can buy happiness.

And yet, the myth endures. Stories about the lottery winner “curse” are deployed whenever jackpots approach the billion-dollar mark. Though he won his jackpot 34 years ago, William Post’s story was retold in a Washington Post article just last week, under the headline “s Mega Millions hits $1 billion, winning doesn’t mean a happy ending.” Why, despite all the available evidence, does the myth persist? What does it mean that this narrative is believed so widely?

Gambling has long been an alternative form of upward mobility in the United States. For anyone who could not or would not climb the traditional class ladder—or who faced discrimination in the mainstream economy—lotteries offered a seemingly fair shot at the American Dream. Especially over the last forty years, as economic opportunity has dried up or became concentrated in certain pockets of the country, lotteries have served as an important means of trying for a new life.

But Americans’ enduring love of gambling has long been in conflict with an important element of the nation’s mythology: that the United State is a meritocracy founded on hard work, a place where the smart, the savvy, and the deserving rise to the top, no matter their background. The implication of this ethos is that hard work always yields a just reward. By design, the meritocracy leaves little room for chance.

In this context, the tale of the miserable winner is less a human-interest tabloid tale and more a moralizing lesson about wealth, merit, and class mobility.

All of these stories bear a single message: it is not healthy to win a windfall. The implication is that if someone won money through gambling, they had somehow violated the natural order of the universe and would inevitably suffer a comeuppance to restore things to their proper place.

The myth reinforces the supposed direct connection between work and merit. Because these winners lost it all, their stories suggest that if they had worked for their fortune, they would have truly deserved it. And anyone who deserves a fortune would know how to live with it, and such a fate would not befall them.

The tale of the regretful winner seems to confirm that a society built on luck is dangerous, even for the very lucky.

The myth, then, is not just an outdated and factually inaccurate narrative. It is a story that reinforces the idea that hard work always and automatically earns just rewards. And it disparages anyone who reasons that it is worth their while to search for an alternative route to the American Dream.

So lottery fans across the country can play with confidence, and can buy a lottery ticket (or five) when a jackpot like Friday night’s is in the offing, secure in the knowledge that a windfall is unlikely to invite a life of pain, suffering, and regret. The bad news, of course, is that they still face nearly impossible odds of winning. But American gamblers have faced long odds for centuries, and it should not be surprising that so many are so eager for a chance to test their luck.

Source: Why winners of jackpots like the Mega Millions are, contrary to popular belief, probably going to be just fine.

Related contents:

Winning lottery jackpot is lucky for some, tragic for others Belleville News-Democrat, Illinois

16:22
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How Multifamily Syndications Can Protect Your Assets Better Than Single-Family Homes

While it can seem easy to get into real estate investing with single-family homes, many investors choose to skip the single-family route altogether for an investment in syndication. Multifamily syndications pool funds from passive investors to purchase large apartment complexes while providing greater asset protection than single-family homes.

Apartment Buildings Offer Safer Debt Than Single-Family Rentals

Most single-family real estate “gurus” preach that it’s fine to personally guarantee mortgages in your own name to qualify for lower interest rates and down payments. However, there is a downside to securing a mortgage in your own name.

If the investment fails or there’s a market downturn and the lender forecloses, you are personally on the hook for that debt. Often, lenders come after your other assets to make up for their losses. Even if you are successful in negotiating debt forgiveness with your lender, the IRS considers the forgiven debt taxable income, which you will end up paying taxes on. For some, this leaves bankruptcy as the only way out.

This type of cross-collateralization is the reason many real estate empires, mom and pop landlords, as well as young investors like myself lost it all in the 2008 housing bust.

While many single-family landlords still turn a blind eye to these risks, it is not a worry for investors in apartment syndications. Since occupied apartments are income-producing businesses, lenders provide loans without a personal guarantee, collateralizing the debt with the asset itself. Furthermore, the loans are only signed by the fund managers, reducing investors‘ risk to the amount they have invested only.

Syndications Protect You From Your Investment

Imagine that you own a single-family rental. Your tenant’s guest gets drunk, falls off the deck, and dies. The family of the deceased wants to sue you personally. If the property is owned in your own name instead of an LLC, then the rental is cross-collateralized with your other personal assets. The family’s attorney can quickly do a search of the public county tax records, identify you and any properties in your name, add up your estimated net worth, and gladly come after everything you own.

There are two ways single-family investors try to protect themselves from this liability, but in my opinion, neither are good options.

1. The first is to transfer ownership of the property to an LLC, which would limit the lawsuit to equity in that one rental. However, if your lender finds out about the transfer, they can exercise a “due on sale” clause and immediately call the balance of the loan due. This can leave you scrambling to refinance the property and, if you can’t secure a new loan in time, perhaps because it happened during a market downturn, the bank can take the property through foreclosure.

2. The second option is to carry a $1 million liability insurance policy. While they believe insurance will protect them from lawsuits, some attorneys see these as big paydays. In the case of litigation, the landlord will find themselves paying out of pocket for a long and expensive lawsuit in hopes of a settlement, all the while crossing their fingers in hopes their insurance will pony up for the settlement without a fight.

Syndications offer a couple of layers of protection against this. With multifamily syndications, each investment is purchased in dedicated LLCs. Furthermore, investors are limited partners in a securities offering, protected with liability limited to their investment.

Syndications Protect Your Investments From Each Other

Once single-family investors build a large portfolio of rentals, they can package them into one LLC and get a portfolio loan that doesn’t require a personal guarantee. While this protects them personally from lawsuits, it exposes the equity in all the properties within the LLC to each other. If one of the rentals is sued or fails to perform, it can’t be foreclosed on individually, which drains the cash flow and equity of the entire portfolio.

Syndications are all held in their own LLCs without the requirement of a personal guarantee. If one undergoes a lawsuit, underperforms or forecloses, there is no personal effect on the investor, their credit or their other properties.

Syndications Protect Your Investments From You

Many investors buy real estate to build an inheritance for their children and grandchildren. It’s a sad day when a legal judgment removes wealth from generations of a family. When held in the right type of entity, multifamily syndications can help protect the inheritance you’re building from personal judgments against you.

Imagine that you caused a fatal car wreck, are sued and lose. If you are unable to pay the resulting judgment, the court may require you to list all your assets and exercise charging orders in which it can force the sale of your investments. To protect against this, investors choose to form holding companies in states that do not enforce charging orders, such as an LLC headquartered in Wyoming, making them far less attractive for lawsuits.

Both single-family homes and multifamily syndication investments can also be placed into trusts, which can help your heirs avoid probate court, minimize estate taxes and help keep your financial affairs private.

Syndications Are Not Right For Everyone

Though multifamily syndications offer a number of asset protection advantages, they are not right for everyone. For example, if you want the freedom to liquidate your investments as needed, syndication is not right for you. Investments in syndication are held until the sponsor sells or refinances the investment, which you, as an investor, have no control over. For greater liquidity, you may want to consider other income-producing real estate investments such as REITs. Talk to your CPA to see which investments work best with your goals.

Invest With Peace Of Mind

Planning for your financial future in a shaky economy can be stressful. When you choose investments with asset protection built-in, you are making a step toward a more secure future.

Patrick Grimes is the founder of Invest on Main Street, a private equity firm managing passive multifamily investments in emerging markets. Read

Source: How Multifamily Syndications Can Protect Your Assets Better Than Single-Family Homes

Critics by HighPicksCapital

There are two types of syndication investors, accredited and non-accredited (sophisticated). Many current property syndications allow both types of investors to participate as limited partners in multifamily investing deals. In most instances, there are no requirements for previous experience as a property syndication investor.

In addition, there is often no limit to the number of participating investors in a multifamily syndication. This is actually an ideal type of property deal for an inexperienced property investor. It is true that the larger the number of investors funding a property investment, the smaller the amount of financial return will be for each investor. Yet the larger the number of participating investors in an investment project, the lower the risk factor will be for each investor.

If a multifamily syndication has the status of 506(C), investing will only be open to accredited property investors. The requirements for becoming an accredited investor are set by the SEC. Accredited investors are required to have a specific net worth or annual income, either as an individual or jointly with a spouse.

The current SEC requirements for qualifying as an accredited investor for syndication property deals are as follows:

  • For the past two years, your income as an individual was more than $200,000 (or you and your spouse had a combined income of $300,000). You are also required to have the reasonable assurance of having the same amount of income or more during the current year.
  • You as an individual or jointly with your spouse have a net worth of more than one million dollars. The one million dollar amount does not include the market value of your primary residence.

Multifamily syndications with 506(B) status are open to both accredited and sophisticated investors. Although sophisticated investors do not have the high net worth that is required to qualify as accredited investors, those who are suitable for these types of investments have significant investing experience and a preexisting good relationship with the general partner (sponsor).

Some syndication investment deals may place limits on the number of participating limited partners who are sophisticated (unaccredited) investors. Often in large property investments like multifamily complexes, major syndicators will not offer as many investing opportunities to sophisticated investors as the number that are open to accredited investors. These property syndicators tend to place more value on the accredited investors due to their qualifications.

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As Crypto Losses Hit Investors, Litigation Picks Up

Lawsuits over cryptocurrency losses are mounting across the country, as investing in digital tokens and coins has become mainstream and the money at stake has increased significantly.

Even before the recent plunge in crypto prices, the industry already was seeing an uptick in lawsuits, which have come in several forms. Many of the cases have been fueled by investors who allege some digital coins were hyped and sold under false pretenses. Some proposed class-action suits allege pump-and-dump schemes involving celebrity promoters. Others allege that some digital tokens are unregistered securities or that cryptocurrency issuers were deceitful in their marketing.

Collectively, the lawsuits speak to both the troubles and successes of a maturing industry.

‘‘We’re seeing all of the normal kinds of litigation that you would see in more traditional companies.

— Jason Gottlieb, a partner at Morrison Cohen

“We’re seeing all of the normal kinds of litigation that you would see in more traditional companies,” said Jason Gottlieb, a partner at Morrison Cohen LLP who tracks cryptocurrency litigation. Mr. Gottlieb said the industry also was attracting an influx of plaintiff and defense lawyers who realize the crypto market is no longer “some obscure backwater for a small gaggle of techno-libertarian nerds. It’s a real business.”

Among recent lawsuits is a case filed in a California federal court over losses in the stablecoin GYEN. The suit accuses GMO-Z.com Trust Co., the issuer of GYEN, and crypto exchange Coinbase Global Inc. COIN -11.15% of advertising the stablecoin as being pegged to the Japanese yen, thereby providing a safer investment than more volatile cryptocurrencies. But when GYEN began trading on Coinbase in November, it immediately became untethered from the yen, leading the coin to spike in value and then drop 80% in one day, the lawsuit alleges. A similar peg break occurred in May 2021 when GYEN became available on a separate exchange, according to the lawsuit.

Kenneth Donovan, 27 years old and a plaintiff who began investing in cryptocurrency in 2019, said he bought $335,000 worth of GYEN last year after reading its white paper and learning the New York Department of Financial Services had authorized GMO-Z.com to issue stablecoins in the state.

In a matter of hours, he said, his investment plummeted to $3,000, wiping out nearly his entire life savings. Before the loss, he, his wife and their young daughter lived comfortably off his investments and gig work for Uber and DoorDash driving shifts, Mr. Donovan said. “I live paycheck-to-paycheck now.”

Some GYEN investors were risk-averse individuals who saw the cryptocurrency’s purported stability as a way to safely enter the crypto market, said Elizabeth Kramer, a partner at Erickson Kramer Osborne LLP, which filed the suit—its first crypto class-action complaint. GMO-Z.com didn’t respond to a request for comment.

A spokeswoman for Coinbase declined to comment on the litigation. Coinbase said in a blog post in January that the break in parity between GYEN and the yen in November was the result of market conditions specific to GYEN. Coinbase didn’t cause the break, the company said in the post.

John Jasnoch, a partner at Scott + Scott, said his firm has “gotten bullish on crypto” and is handling six cryptocurrency cases, with more in the pipeline. His portfolio includes three proposed class-action suits filed this year over investment losses in SafeMoon, a blockchain-based digital token that charges investors a 10% fee when they sell the asset. SafeMoon founders said the levy—half of which is redistributed to current investors—discourages sales of the token and encourages long-term holding.

The plaintiffs allege that SafeMoon was a pump-and-dump scheme in which it used celebrities such as boxer Jake Paul, musician Nick Carter and rapper Lil Yachty to promote the tokens on social media. SafeMoon founders encouraged purchases of the token while selling off their own holdings as the trading volume remained inflated, the plaintiffs allege.

Lawyers for SafeMoon, Mr. Paul and Lil Yachty didn’t respond to requests for comment. In a court filing in one of the suits, a lawyer for Mr. Carter denied that his client acted as a promoter for SafeMoon and asked a judge to dismiss the complaint. As lawsuits grow, firms that do defense work are seeing increasing demand for representation from crypto companies and trading platforms that want to avoid legal liability and regulatory scrutiny.

Ian McGinley, a partner at Akin Gump Strauss Hauer & Feld LLP, said crypto firms are eager for help navigating “an atmosphere where the rules are not particularly clear.” Facing a lightly regulated environment, some crypto investors have looked to courts to answer core legal questions for the industry, such as whether digital tokens are securities that should be subject to the same regulations as stocks.

In one closely watched federal suit, crypto investors have accused Coinbase of violating securities laws by acting as a seller of unregistered tokens. The platform has asked a judge in New York to dismiss the case, arguing that it matches buyers and sellers but doesn’t transact directly with users. It also says the tokens aren’t securities.

The value of digital money reached a peak of nearly $3 trillion in November before plummeting by about $1.7 trillion in recent months. The crypto market’s volatility over the past six months and the recent plunge of popular cryptocurrencies will likely lead to more suits in the future, lawyers say. Coming litigation will likely focus on alleged misrepresentations around the strength of the technology of certain coins, said Mr. Jasnoch, the Scott + Scott partner.

“It will be cases involving bigger projects that promise the moon and the stars and have just been battered by the market when all these promises didn’t come true,” he said.

By James Fanelli

Source: As Crypto Losses Hit Investors, Litigation Picks Up – WSJ

Critics by : Sam Skolnik 

Cryptocurrency litigation is soaring, prompted by a surge of investors in the space, and US proposals promise more rules to fight over in coming months and years. Crypto has generated more than 200 class action lawsuits and other private litigation as of this month, up more than 50% since the start of 2020, according to Morrison Cohen, which tracks the activity. Half of all crypto litigation are class actions or private suits, according to the firm’s data.

“There’s been a steady stream of cases from regulators, but what’s really exploded is private litigation,” said Jason Gottlieb, chair of Morrison Cohen’s white collar and regulatory enforcement practice group in New York. The rise in litigation is encouraging Big Law operations to bolster their crypto practices. Firms including Jenner & Block, Goodwin Procter, and Morrison & Foerster in the last few months have added new crypto partners to their rosters, including former fraud prosecutors, securities litigators and investment funds lawyers.

The litigation growth comes at a tumultuous time for crypto. A backer of the collapsed TerraUSD stablecoin lost $3 billion in cryptocurrency reserves in a failed effort to restore its peg to the dollar, Bloomberg News reported Monday. Bitcoin on May 12 hit its lowest level since 2020 and was down 50% from its November high, according to Bloomberg. Perkins Coie has so much activity on the crypto front that it holds weekly team calls, typically including 50 to 70 firm attorneys, said Joe Cutler, firmwide co-chair of the firm’s fintech industry group. “We have content coming out of our ears,” he said.

At Latham & Watkins, more than 700 lawyers worked on crypto or blockchain issues in 2021 alone, said Yvette Valdez, co-chair of the firm’s global digital assets and Web3 practice. “The market is exploding, not just at the partner level but at the associate level too,” Valdez said. The result is a buyer’s market for lawyers, as firms see colleagues leave for general counsel positions at crypto companies, said Joshua Ashley Klayman, U.S. head of fintech and head of blockchain and digital assets for Linklaters in New York.

The world’s largest cryptocurrency exchange by trading volume, Binance Holdings Ltd., is looking to hire more than 30 lawyers, Bloomberg Law reported Monday. Another cryptocurrency exchange, Bittrex Global GmbH, hired a Shearman & Sterling senior associate late last year to be its general counsel.

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IRS Under Fire After Destroying 30 Million Tax Documents

The Internal Revenue Service, struggling to deal with a massive backlog of paper filings, decided to “destroy an estimated 30 million paper-filed information return documents in March 2021,” the agency’s watchdog reported last week.

The IRS said in a statement Thursday that taxpayers “have not been and will not be subject to penalties resulting from this action.” It said that it processed 3.2 billion information returns in 2020 and that the destroyed documents are not tax returns but documents submitted to the IRS by third-party payors.

It added that 99% of the information returns were already processed and the remaining 1% of those documents “were destroyed due to a software limitation and to make room for new documents relevant to the pending 2021 filing season.”

The agency also said that “this situation reflects the significant issues posed by antiquated IRS technology.” The destruction of documents has sparked a backlash from tax preparers, with some reportedly concerned that the decision could hamper the agency’s ability to verify returns and trigger additional error notices.

“IRS management’s decision to destroy information return documents due to the processing backlog raised numerous questions regarding IRS’ decision making and risk assessment process,” Edward Karl, vice president of taxation at the American Institute of CPAs, said in a statement. “The IRS’ recent statement provided some of the answers, but American taxpayers deserve to know why this decision was made and how it might impact them.”

Rep. Bill Pascrell (D-NJ), chairman of the House Ways and Means Oversight Subcommittee, on Friday called for President Biden to replace IRS Commissioner Chuck Rettig, describing the document destruction as the latest black eye for the agency.

“The IRS is vital to public confidence in our nation and its Trump-appointed leader has failed,” Pascrell said in a statement. “The manner by which we are learning about the destruction of unprocessed paperwork is just the latest example of the lackadaisical attitude from Mr. Rettig.

This latest revelation adds to the public’s plummeting confidence in our unfair two-tier tax system. That confidence cannot recover if all the American people see at the IRS is incompetence and catastrophe.”

While the report doesn’t specify which information returns the agency chucked, the news has triggered angry responses from tax professionals, particularly after another difficult filing season.

“I was horrified when I read the report describing the destruction of paper-filed information returns,” said Phyllis Jo Kubey, a New York-based enrolled agent and president of the New York State Society of Enrolled Agents.

Missing information returns can cause a “mismatch” at the IRS, delaying refunds because the agency can’t verify details on a taxpayer’s returns, she explained.

While the eventual consequences of the decision are unknown, tax professionals have long complained about the stream of automated IRS notices, with limited options to reach the agency.

“If they’re not putting those into the system, there’s going to be discrepancies, which means potential notices that are sent out,” said Dan Herron, a San Luis Obispo, California-based certified financial planner and CPA with Elemental Wealth Advisors.

Although the IRS halted more than a dozen types of automated notices in February, Herron says the constant correspondence is still creating headaches for taxpayers and advisors.

“There were no negative taxpayer consequences as a result of this action,” the IRS said in a statement on Thursday. “Taxpayers or payers have not been and will not be subject to penalties resulting from this action.”

Brian Streig, a CPA with Calhoun, Thomson and Matza LLP in Austin, Texas, said the news was a “break of our trust,” pointing to the burden on the business community.

“Small businesses stress out every year in January trying to accurately prepare these informational returns and get them filed on time,” he said. “To see the IRS just destroy these is almost like the IRS admitting they don’t really care.”

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Source: IRS Under Fire After Destroying 30 Million Tax Documents

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How to Avoid Capital Gains Tax

Saving for retirement is all about investing, and no matter how you go about it, you’re going to end up paying taxes on what you save and earn. Taxes on capital gains can eat up a significant portion of your earnings each year.

When you’re building wealth and planning for retirement, it’s important to not leave any money on the table. That’s why it’s important to point out that a fiduciary financial advisor can help you optimize a tax strategy and identify savings opportunities to lower your tax liability.

An advisor can also help you manage assets and plan for retirement, so you can worry less about meeting your financial goals. According to a 2021 Fidelity study, financial advice can add between 1.5% and 4% to account growth over extended periods.1

Handing over a chunk of your profit can be painful. Thankfully, there are a few ways that you can reduce the amount of capital gains taxes you will pay after selling an asset.

Investing involves risk and no situation is the same. This is in no way intended as a personal recommendation and investment decisions are solely those of the reader.

1.

Choose Long-Term Investments

Capital gains can be classified as either short-term or long-term, each of which has its own tax rates.

Assets you have held for less than a year are considered short-term. When it comes to earning short-term gains, expect to be taxed at your ordinary tax rate. This can be as high as 37%, depending on your total taxable income.

If you want to avoid that, you should consider choosing long-term investments instead. By holding an investment for a year or more, you will qualify for long-term capital gains tax rates.

Most long-term capital gains will see a tax rate of no more than 15%, though certain assets (like coins and art) can be taxed at a rate up to 28%. Depending on your income, you may even qualify for capital gains tax rates as low as 0%.

2.

Take Advantage of Tax-Deferred Retirement Plans

Your retirement accounts likely make up a bulk of your savings and future assets. It’s wise to optimize these as best you can by utilizing tax-deferred (and tax-exempt) plans, to save yourself from added capital gains taxes.

When contributing to a tax-deferred retirement plan, such as a 401(k) or traditional IRA, you’ll receive a tax deduction on your contributions in the current tax year. This can save you money on your income taxes today, as well as help you save even more toward the future.

Your money will also continue to grow over time. When you’re finally ready to sell your investments and withdraw, any growth in the account is taxed at your ordinary income rate, rather than being subject to capital gains like other investment accounts.

A tax-exempt account, such as a Roth IRA, doesn’t offer any tax benefits today, but grows tax-free until retirement. When you’re ready to use the money, your funds (and growth) can also be withdrawn tax-free, helping you avoid capital gains yet again.

3.

Offset Your Gains

If you hold a number of different assets, you may be able to offset some of your gains with any applicable losses, allowing you to avoid a portion of your capital gains taxes.

For instance, if you have one investment that is down by $3,000 and another up by $5,000, selling both will help you reduce your gains. You would only be subject to capital gains taxes on the difference – or $2,000 – rather than the full $5,000 gain of the second investment.

Another offset strategy is tax-loss harvesting. With this method, you can carry over losses from one tax year into the next, to help offset future gains. Tax loss harvesting only applies if your losses in a given year exceed your total gains.

Take Retirement Quiz

If you’re looking for a way to decrease your tax burden, we recommend finding a financial advisor. They can help you understand your options and look for ways to save money on your tax bill, make smart investments and plan for retirement.

If you need help finding a financial advisor, we created a free quiz to help Americans find and vet qualified financial advisors who serve their area.

This quiz asks you a few questions, then matches you with up to three fiduciary financial advisors. You can compare your advisor matches based on their specialty, pricing, and more. You even earn 3 free consultations with each of our matches, so you can compare them and be fully prepared to pick a financial advisor.

The hypothetical study discussed above assumes that professional financial advice can add between 1.5% and 4% to portfolio returns over the long term, depending on the time period and how returns are calculated and is based on the Fidelity Whitepaper “Why work with a financial advisor, November, 2021”. Please carefully review the methodologies employed in the Fidelity Whitepaper.

The value of professional investment advice is only an illustrative estimate and varies with each unique client’s individual circumstances and portfolio composition. Carefully consider your investment objectives, risk factors, and perform your own due diligence before choosing an investment adviser..1

Helping people make smart financial decisions

When you own an investment or other asset – such as real estate, land, a business or stocks, for example – and later sell that asset for a profit, you have realized capital gains. The tax that is then levied on the profit portion of your sale is called capital gains tax.

Depending on how your gains are classified, and your total taxable income for the year, your capital gains tax rate can vary. This percentage could be as low as 0% or as high as your ordinary tax rate. Consider consulting a financial advisor to determine how your gains will be classified so you can know what to expect when taxes are due. Click here to get matched with up to three advisors who serve your area.

Source: How to Avoid Capital Gains Tax

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