Winter "Harvest"

Hello NFC Clients and Friends,

I trust you all had a wonderful Christmas and hope you have the opportunity to spend some quality time with family and friends.  Having all 3 of our daughters back under one roof (2 in college) along with extended family over the two weeks of the holiday season is a real blessing.  Below is a missive I “penned” early this morning to my girls, following up on one of our end-of-year financial fitness conversations.  I know, I know— not exactly the stuff of O Holy Night, Kris Kringle, and sugar plums.  However, this is some of what dances in my head this time of year 🤷. I like to think that at least one of the 3 wise men might have contemplated something similar if living in the United States post- Revenue Act of 1921.  Forgive the tortuous, if not blasphemous stretch from The Manger to long term capital gain harvesting. Email below:

“Girls, this is why we are going to do some capital gains “harvesting” the year before your first real job (or before you make more than $48,350).*  Next year will be the first year this happens for any of you—Mackenzie’s first engineering job with GE Vernova!  So, she will sell her VTI  position in her taxable brokerage account and “harvest” the “long term (> 1 year) capital gains TAX FREE.  The shares of VTI she has been auto-purchasing monthly, along with periodic one-time investments from summer work, a percentage of her work-study gig and all gift money (e.g. Birthdays and Christmas) are worth much more than when she bought them over the years. The market goes up over time, helping us swallow the bitter pill of inflation.  She will then take that tax free gain and turn right around and repurchase the very same VTI with all the original investment + the gains at a new, higher cost-basis (price level).  Over the years as the market continues its volatile but inevitable march higher, Mackenzie will continue to purchase shares automatically each month, but now starting at a much higher cost basis. This means when or if she needs to sell some shares for a down payment on a home, buy a car, take a vacation, etc. the amount of “long term capital gains” will be far less because of the new higher cost basis than had she not harvested her LTCGs at her current 0% tax rate. As a result, she will pay far less in taxes than if she let these gains build up over the decades.      

  Paying a 15% tax on long-term capital gains is not a bad thing, and certainly better than paying at your personal income tax rate.  It is a sign that you’re winning with your investments.  But Uncle Sam wants his piece. Have you seen our national debt recently?  Capital gains harvesting is just a smart, legal way of navigating the system so you get to keep more of your own money.  Only about 1% of the population understands this, so don’t worry, we will follow up with plenty of conversations to make sure you’re part of that one percent :-).  I am sure you cannot wait to discuss!  Love, Daddy”

Note: No one need do this for any of their Roth IRA accounts as these investments grow tax free. Forever!  Nor is this necessary for those of you who have 401k, 403b, or 457b accounts.  These are all “tax preferred” accounts, and taxes will be paid on this money when you withdraw these funds no matter what you do between now and then. Also note from the tax table below that these numbers refer to one’s “taxable income,” which means you can add the standard deduction and all other above the line deductions to these totals to see the threshold for your ability to harvest capital gains at the 0% tax rate. For example, if you were married filing jointly and ONLY used the standard deduction, your income could be up to $128,200 in 2025 to qualify for the 0% rate.  This is a pretty good deal for middle class earners who have the ability to control their income, especially in retirement.

     Yours in Financial Fitness,

     David        Norman Financial Coaching

*For the 2025 tax year (taxes filed in 2026), the long-term capital gains tax rates remain 0%, 15%, or 20%, depending on your taxable income. To qualify for these rates, you must hold the asset for more than one year.

2025 Long-Term Capital Gains Tax Brackets

Tax Rate	Single Filers	Married Filing Jointly	Head of Household
0%	Up to $48,350	Up to $96,700	Up to $64,750
15%	$48,351 – $533,400	$96,701 – $600,050	$64,751 – $566,700
20%	Over $533,400	Over $600,050	Over $566,700

Important Details to Keep in Mind

• Taxable Income vs. Gross Income: These thresholds apply to your taxable income(your total income minus the standard deduction or itemized deductions), not your total salary.

• Net Investment Income Tax (NIIT): High-income earners may owe an additional 3.8% tax on investment income if their modified adjusted gross income (MAGI) exceeds $200,000 (single) or $250,000(married filing jointly).

• Short-Term Gains: If you sell an asset you've held for one year or less, it is taxed as "short-term" capital gains, which are taxed at your ordinary income tax rate(up to 37%).

• Special Rates: Certain assets have different maximum rates:

  • Collectibles (e.g., coins, art): 28%

  • Unrecaptured Section 1250 Gain(real estate depreciation): 25%

2026 Preview

Looking ahead to the 2026 tax year, the brackets will shift slightly for inflation. For example, the 0% rate threshold for single filers is expected to rise to $49,450.