Capital Gains Tax Question: How do I minimize my tax liability?

Thanks for this explanation! I have a similar situation but I'm wondering - does maxing out 401k contributions also potentially lower the capital gains tax rate? Like if I contribute enough to my 401k to drop my income below a certain threshold, could that move me from the 15% to the 0% capital gains bracket?

Yes, that's exactly right! If you can reduce your taxable income enough through 401k contributions, you could potentially drop into a lower capital gains tax bracket. For 2025, the 0% long-term capital gains rate applies to taxable income up to approximately $47,025 for single filers (numbers adjusted slightly for inflation from previous years). So theoretically, if you could reduce your taxable income from $78,000 down below that threshold through 401k contributions and other deductions, you might qualify for the 0% rate on some or all of your capital gains. This strategy is sometimes called "bracket management" and can be very effective for managing your tax liability.

How accurate is it with calculating the adjusted basis? I inherited some stocks and I'm completely lost on how to determine their value for capital gains purposes. Does it handle that kind of situation?

I'm skeptical about these tax tools. How does it compare to something like TurboTax or H&R Block? Is it just analyzing documents or does it actually help you file too?

For inherited stocks, it actually handles basis calculations very well. It applies the step-up basis rules correctly, meaning the basis becomes the fair market value on the date of the previous owner's death. I had a similar situation with some shares I inherited from my grandparent, and it saved me from a major headache figuring out the adjusted basis. This is different from TurboTax or H&R Block in that it's more focused on analysis and planning rather than just filing. It helps you understand tax implications before you make decisions, especially with investments. You still use your regular tax software to file, but you go in with a much clearer strategy. The document analysis is particularly good at catching things human preparers sometimes miss.

Wait, how does this actually work? Does it just call the IRS for you or something? I don't understand how a service could get you through faster than just calling yourself.

This sounds like complete BS. I've called the IRS plenty of times and while it can take a while, you just need to be patient. I highly doubt any service can magically get you to the front of the line when thousands of people are calling. Sounds like a scam to take your money.

It uses some kind of callback system that navigates the IRS phone tree and holds your place in line for you. Instead of you sitting on hold for hours, their system does it, then calls you when an agent is about to pick up. It's not magic - it's basically automated hold technology that most companies should offer but don't. I was skeptical too before trying it. The difference is you don't have to stay glued to your phone for hours listening to the hold music. You can go about your day, and they call you when an agent is available. Not sure exactly how the technology works, but in my experience, it did exactly what it promised. I got through to the IRS on my first try after failing multiple times on my own.

Do you know if there's any way to offset or reduce state capital gains taxes? Do strategies like 401k contributions work for state taxes too?

Generally, 401k contributions will reduce your state taxable income as well as federal, so that strategy works for both. In most states, their tax system is linked to the federal system, so deductions that work federally often work at the state level too. Some states have unique quirks though. A few states offer special capital gains exclusions for in-state investments or specific industries. And nine states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) don't have income tax at all, so capital gains are only taxed federally if you live there.

Tax-loss harvesting can be a great strategy. Basically, you can use investment losses to offset your capital gains dollar-for-dollar. If your losses exceed your gains, you can even use up to $3,000 of those losses to offset ordinary income, with any remaining losses carrying forward to future years. Just be careful about the wash-sale rule - if you sell an investment at a loss and buy the same or a "substantially identical" investment within 30 days before or after the sale, you can't claim the loss for tax purposes.