Rethinking Capital Gains

As discussed in our latest quarterly letter, your tax return is more than a record of what happened last year- it is a helpful lens into how your investments are working over time. One area worth paying attention to is capital gains. Often viewed as an additional tax burden, long-term capital gains benefit from more favorable federal tax treatment than most other income, generally taxed at 0%, 15%, or 20%. In some cases, a 3.8% net investment income tax may also apply at higher income levels, though overall rates are still typically lower than ordinary income. 

With that in mind, it is useful to shift how gains are evaluated. Rather than focus on the dollar amount, consider how much of your overall investment growth was realized during the year. In other words, how much of it became taxable? Looking at it this way helps add context. Realizing gains is not inherently a negative outcome. It is a natural result of rebalancing, portfolio changes, and funding cash flow needs.

Because of lower tax rates, the impact is often more manageable than it appears. 

The goal is not to avoid gains, but to be more intentional about when and how they show up in the bigger picture. Sometimes that means realizing more gains in a lower income year, and other times it means being more selective. Over time, this can support a more efficient, flexible plan where investment decisions, income planning, and tax strategies all work together.

Questions? Contact a United advisor at (516) 222-0021

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