Double Taxation

Today TaxMama® hears from NutShell in the TaxQuips Forum, with this brilliant observation. (let me summarize) “I just figured out that if I have capital gains income, I am taxed by both the IRS and the state. If I live in an income tax-free state or overseas, should I sell my stocks before moving into a taxable state, like, say, NJ?
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Dear NutShell,

It’s nice to see someone doing some planning. Well done.

Yes, normally, you do get taxed by both the IRS and the state when you sell capital assets at a profit.

So, if you are now living in a tax-free state and deliberately plan to move to a state that does have taxes, you can save money on state taxes by selling off your profitable assets before you move.
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But continue testing the scenario in your tax software.

What happens to your federal (IRS) tax when you sell your whole portfolio at a profit?
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Does it push you into a higher federal tax bracket?
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(You’d be surprised. It just might not…because for capital gains the tax rate should be your rate before the gains are taken into account.)

Incidentally, if you are residing (or considering residing) overseas, and maintain a US mailing address – have that address be in a state that does not have an income tax. Otherwise, all the 1099s will show that state address and the state will be looking for tax returns.

And remember, you can find answers to all kinds of questions about how to avoid double taxation and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

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