Capital Gains

[Misspag]

Hi,

I am in a tipped position and I earn around $100,000/year including my tips. I know they recently passed no federal income tax on $25k of tips. Not sure how that works yet.

I currently have $24,480.74 long term capital gains for this year. I contribute 20% of my pretax earnings to a 401k, and $2,300 towards an HSA. I also have school loans of $66,000 that will begin to accumulate interest August 1. Is there any way to offset the capital gains taxes for this year? I do not own any real estate.

Any advice you can give me will be helpful.

Thank you,

Suzanne

[Bsch4477]

You can only offset capital gain income with capital losses. 

[Cindy4]

Offsetting capital gains usually requires harvesting some losses.  There may be investments you can sell that are in a loss position.  You can check with your broker and also ask about selling based on the specific identification method rather than the traditional first in first out method. 

Here are some tools that may help you:  
TurboTax Investment Hub

Also,  this will help clarify the no tax on tips from the Big Beautiful Bill -  One Big Beautiful Bill 

You can see how the changes from the new bill impact you here - Tax-reform-calculator 

Hope this helps!

Cindy

[Terri Lynn]

Regarding tip income:
The Big Beautiful Bill that was recently passed, will allow tipped workers, like waiters and bartenders, who earn less than $150,000 per year, or $300,000 if married filing joint, to deduct up to $25,000 of their tips, from federal taxable income in tax years starting in 2025 thru 2028. 

You are doing a great job lowering your taxable income by contributing 20% of your pre-tax earnings to your 401(k) and $2,300 to your HSA. This is not only preparing you for the future but also giving you tax breaks right now by reducing what’s considered taxable income. . Your long-term capital gains of $24,480.74 will be taxed at 0%, 15%, or 20%, depending on your adjusted income, which is already lowered due to your contributions. Also, once your student loans start accruing interest, you might qualify to take the deduction of up to $2,500 for student loan interest.

Some potential options for lowering capital gains for this year are:

• Put More Into Your 401(k):
  In 2025, the maximum amount you can contribute to a 401(k) plan is $23,500. If you are age 50 or older, you can make an additional catch-up contribution of $7,500, bringing your total potential contribution to $31,000. For those aged 60-63, there is a special catch-up provision allowing for a $11,250 contribution on top of the base limit, potentially reaching a total of $34,750Adding more can lower your adjusted income, which might reduce the tax rate on your capital gains.
• Sell Investments With Losses:
  If you own investments that have dropped in value, selling them can offset your capital gains directly. It’s called tax-loss harvesting, and it’s a great way to reduce what you owe.

For more information see these additional resources:

• IRS: Tip recordkeeping and reporting 
• Pub 550: Capital Gains Tax Info IRS 
• IRS Contribution Limits 
• Capital Gains and Losses - TurboTax Tax Tips & Videos - Intuit 
• Tax Loss Harvesting: A Comprehensive Guide How It Works 

Please feel free to reach backout with any additional questions or concerns you might have!

Thank you for joining us today and have an amazing rest of your day!

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer.”

[Misspag]

Thank you so much for your detailed answer! It helps me to see where I can continue taking action to reduce my taxes owed at the end of this year. I appreciate you taking the time and sharing your knowledge with me.

[JotikaT2]

Thank you for joining us for the event today.