In this Video, Dave Stolz, CPA discusses the new tax in Washington state that applies to long-term capital gains over $250,000.
As always, feel free to reach out with any questions.
Hi, for "Finance Friday", I want to talk about something that's been in the paper a lot lately. As Washington State residents, we now have a capital gain excise tax, or I'm sure as most people refer to it, a capital gain income tax. Let me just run through that briefly.
First, it applies to sales from January 1 of 2022 forward. It was passed as a law and then there was a court challenge, but it was retroactively approved. So, it is for sales beginning in 2022, which you have to file a tax return for in 2023.
It applies to sales with capital gains that are over $250,000. That’s a lot of money, so it's not going to apply to everybody. First, it excludes all real estate. It also excludes all retirement accounts. It's hard to imagine a retirement account with a capital gain, but it's possible. So, no real estate and no retirement accounts. What we're really talking about is taxable brokerage accounts with stock transactions and so on, and then businesses, probably, with tangible or intangible asset sales.
So if you have a patent on something and you sell it and it's over $250,000. You have that collector sports car that's been in the garage for 10 years that was given to you that now all of a sudden it's worth a bunch of money. So those are the things that this is going to apply to.
It's a 7% tax, only on sales over $250,000. So, you go to the federal tax return and find your long-term capital gain. That's the number that you go off of to calculate this tax. So, if you have long-term gains over $250,000, which is unusual, but if you do fall into that, you really want to be careful and see what you can do to plan around it.
Filing the tax return, you go online with the Department of Revenue, you create an online account and then you report the information there. If you don't owe tax, you do not file a return. You only file if you have transactions totalling over $250,000. So, most of us, this won't really impact very often.
Also, there's no estimated tax payments owing. So, if during the year, you know you have some sale of your business or some transaction that's unusual and you're going to fall into this and owe some tax, you do not have to pay estimated taxes.
So for the most part, this is going to be brokerage accounts, investment accounts, and it's the kind of stuff that we plan around all the time. So just so you know what's coming at you, it's a new tax. We'll see if there's a change in it, but for the moment, it is law and you need to plan for it.
So I hope you're having a great Friday.