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What to Expect with Capital Gains Taxes in 2022

We have had several clients who, as they're working through their taxes, are getting some surprises in terms of the amount of capital gains recognition that we have from last year. If that's you, here's some insight into why that's happening and how it affects your financial plan.

Why Your Capital Gains Tax May Be Higher This Year

Let's begin to understand the present by glancing back at the past. Think back two years ago: we were going into COVID with unprecedented shutdowns around mid-March of 2020. The market was crashing–ultimately about 38% in six weeks.

Buying Low Just Before the Rebound

At that time, we didn't know if it was the bottom of the market, but things didn't deteriorate economically any further from a market standpoint. From a COVID perspective, they sure did. Economically, we saw the rebound begin right after we made the decision to go on offense and buy low.

Around that point, we had moved closed to a third of all our clients' more conservative investments and moved them into the market. With prices at panic-driven lows, it was time to call on that "dry powder" and go on the offense.

Waiting to Make a Move With the Market

Fast forward to Fall 2021. The opposite scenario played out. Anticipating some market turbulence from factors like inflation and the supply chain crisis, we moved 15% to 20% of all the equity positions out to one-year T-bills or more conservative positioning within your portfolio.  

Since then, we've been sitting, waiting to redeploy some of that capital. Now, we're just starting to do some of that. 

So What About My Capital Gains?

We bought low in the Spring of 2020 and sold much higher in late 2021. This is fundamentally what caused your potentially higher capital gains tax.

Now, these are all long-term capital gains. These aren't short-term capital gains–we're not trying to day trade the market or anything. If you have a sizable non-retirement account, the sales that we pulled off in Fall 2021 did trigger some higher than normal capital gains recognition. 

So if you're having those conversations about capital gains with your CPA and it's raising some questions in your head, this is the "why". That's what has triggered maybe some higher than typical capital gain recognition in 2021 that we're now having to take care of in 2022 as we file taxes. 

How We've Planned For Your Capital Gains

Our position is always to let the asset that has created the tax liability pay for the tax liability. If you're running a little low on cash and you need to write a check, please don't stress yourself out. The money that you made is in the accounts, and it's available to pay the taxes.

If you have any questions on this or anything else, at all times, please feel free to give us a call. We're always here with perspective for the decisions ahead.