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What Every Woman Needs To Know About Capital Gains · The Wealth Cafe

• 0:15
  SPEAKER_00: Welcome back to the Wealth Cafe.
• 0:17
  SPEAKER_00: I'm Caroline Tannis, lead financial advisor and founder of Tannis Financial Group, and I am so excited to have you join us for today's episode.
• 0:25
  SPEAKER_00: And to kick things off, I want to start with something that Bank of America's Head of National Wealth Strategies said in April of this year.
• 0:33
  SPEAKER_00: He actually called out that capital gains are going to be the biggest tax story of 2026 for wealthy investors.
• 0:40
  SPEAKER_00: He went on to explain why and shared that depending on the day, the SP 500 has actually climbed more than 85% since the beginning of 2023, three consecutive years of double-digit returns.
• 0:53
  SPEAKER_00: And if you have been invested, and most of you likely have, if you're tuning in, you are sitting on a significant portion of unrealized gains.
• 1:01
  SPEAKER_00: Probably the largest unrealized gains in the history of your investing career.
• 1:06
  SPEAKER_00: And here's the problem: most of the women I work with at your wealth level, they know this in a general sense, right?
• 1:13
  SPEAKER_00: You open your statements and you know that your portfolio has grown.
• 1:17
  SPEAKER_00: You know there are gains in there somewhere, right?
• 1:19
  SPEAKER_00: The value has grown, but you probably haven't done the specific quantified analysis of what those gains actually mean for your tax picture or what the options are for managing them.
• 1:31
  SPEAKER_00: Maybe you even need to look at what the window is for acting before this year ends.
• 1:36
  SPEAKER_00: That's why today's episode is going to cover exactly that, the capital gains problem that wealthy women are sitting on right here, right now.
• 1:44
  SPEAKER_00: We're going to cover what it is, what's at stake, and what you can actually do about it before the clock strikes on December 31st.
• 1:51
  SPEAKER_00: This is not a theoretical episode.
• 1:53
  SPEAKER_00: This is one of the most immediately actionable conversations we are going to have on this show this year.
• 1:59
  SPEAKER_00: Because the window to act upon this is right now and it closes on December 31st, actually, not even at midnight, at 4 p.m.
• 2:08
  SPEAKER_00: when the trading day ends.
• 2:09
  SPEAKER_00: I want to make the numbers concrete because I think that most people have a vague sense of what the capital gains tax is without understanding what it actually costs them personally in their portfolio.
• 2:22
  SPEAKER_00: So for 2026, long-term capital gains, and that's gains on assets held for more than one year, they are taxed at federal rates of 0%, 15%, or 20%.
• 2:34
  SPEAKER_00: And that depends on your income.
• 2:36
  SPEAKER_00: For high earners, that rate is probably going to fall around the 20% mark.
• 2:39
  SPEAKER_00: And this is not the full picture.
• 2:42
  SPEAKER_00: On top of the 20% federal rate, the net investment income tax, also called NIIT, adds an additional 3.8% for those taxpayers with a modified adjusted gross income that exceeds$250,000 for couples that are married filing jointly, which actually brings your effective tax rate to 23.8% on long-term capital gains.
• 3:05
  SPEAKER_00: Now add in state taxes like New Jersey, the capital gains are taxed at ordinary income rates, which the top level is 10.75%, and New York, it's up to 10.9%.
• 3:16
  SPEAKER_00: So for New Jersey women, in the top tax bracket, the combined federal and state on long-term capital gains can reach 34% or higher.
• 3:25
  SPEAKER_00: Now let's actually put this into dollars.
• 3:27
  SPEAKER_00: If you have a concentrated position that has gained$500,000, which is a completely realistic number for someone who has held company stock index funds or something like that for the last three years, the tax bill on that gain could be$170,000 or more before you ever even see a dollar of it.
• 3:47
  SPEAKER_00: And here's the critical point the tax bill doesn't go away by ignoring it.
• 3:51
  SPEAKER_00: The gain is there and the tax is coming.
• 3:54
  SPEAKER_00: And that depends on whether you are going to sell now or if you're going to set up a plan to eliminate it by passing this asset on to your heirs at death by getting a step up in cost basis.
• 4:05
  SPEAKER_00: But even then, it'll be part of your estate.
• 4:07
  SPEAKER_00: The question is not whether or not you're going to deal with it.
• 4:10
  SPEAKER_00: The question is when, and the question is now how.
• 4:13
  SPEAKER_00: Let's talk about the detail that most advisors are not proactively discussing with their clients, and that I want to make sure that you understand before you make any decisions about realizing gains this year.
• 4:26
  SPEAKER_00: The One Big Beautiful Bill Act raised the salt deduction cap to$40,400 for married filers in 2026, a key number to know.
• 4:36
  SPEAKER_00: And this is great news for most women in this audience who live in those higher tax states.
• 4:41
  SPEAKER_00: But here is the wrinkle that expanded salt cap phases out for taxpayers who have a modified adjusted gross income above$505,000, falling by 30 cents for every dollar above that threshold.
• 4:56
  SPEAKER_00: And then it disappears entirely around approximately a magi of$605,000.
• 5:03
  SPEAKER_00: So why does this matter for capital gains?
• 5:05
  SPEAKER_00: Because if you realize a large capital gain this year and it pushes your income into that phase out range, that gain does a double dose of damage.
• 5:15
  SPEAKER_00: You're going to raise your taxable income directly and it simultaneously is going to reduce your salt deduction.
• 5:22
  SPEAKER_00: According to an analysis from Elliot Davis, who is a US-based tax firm, a couple with a Magi of 600,000 who has 400,000 in salt expenses can only deduct 10,000, not the full 40,000.
• 5:36
  SPEAKER_00: A$10,000 increase in Magi in that range can effectively increase taxable income by$130,000.
• 5:46
  SPEAKER_00: So if your income normally runs close to that$500,000, you need to model out the salt interaction before you realize any gains this year.
• 5:55
  SPEAKER_00: The timing of sale to stay just under that phase-out threshold or just past it can matter meaningfully.
• 6:02
  SPEAKER_00: This is exactly the kind of analysis that your advisor should be doing for you.
• 6:06
  SPEAKER_00: And if they haven't brought it up, it is worth asking them directly.
• 6:11
  SPEAKER_00: Let me give you the menu of strategies because the right answer, it's going to be different for every woman, and it depends on her specific portfolio, her income, and also the goals of her and potentially her family if she has one.
• 6:25
  SPEAKER_00: Let's start with tax loss harvesting.
• 6:27
  SPEAKER_00: This is the most widely known strategy.
• 6:29
  SPEAKER_00: And here you are selling positions with unrealized losses to offset gains realized elsewhere in your portfolio.
• 6:36
  SPEAKER_00: The losses offset gains dollar for dollar.
• 6:39
  SPEAKER_00: And if your losses exceed gains, you can deduct up to$3,000 against ordinary income annually and carry the rest forward.
• 6:48
  SPEAKER_00: The important rule is the wash sale rule prohibits repurchasing the same substantially identical security within 30 days of the sale.
• 6:57
  SPEAKER_00: So this means that you can immediately buy a smaller but not identical security to still maintain your market exposure and make sure you're not just sitting on the sidelines.
• 7:07
  SPEAKER_00: Let's talk about direct donations of appreciated securities.
• 7:11
  SPEAKER_00: If you give directly to a charity and you have appreciated positions, donating the securities directly rather than selling them and donating the cash, it's going to help eliminate that capital gains tax entirely.
• 7:24
  SPEAKER_00: You receive a deduction for the full fair market value of those securities.
• 7:29
  SPEAKER_00: And then you have the charity that pays no tax on the gain.
• 7:33
  SPEAKER_00: This strategy is available whether you give directly to a nonprofit or if you are using a donor advice fund, which is a different and more flexible and efficient way to do so.
• 7:44
  SPEAKER_00: But you have to figure out what's right for you, your family, and your goals.
• 7:48
  SPEAKER_00: Let's dive into installment sales for real estate and business interest.
• 7:52
  SPEAKER_00: So if you are someone who is selling a property or a business interest with a large embedded gain, an installment sale allows you to spread that gain recognition over multiple years.
• 8:03
  SPEAKER_00: And that can help to keep you in a lower bracket each year rather than taking a massive hit in any single given year.
• 8:10
  SPEAKER_00: Charitable remainder trusts are something that we've talked about on this podcast before.
• 8:14
  SPEAKER_00: And for women with both significant appreciate assets and genuine philanthropic goals, a CRT allows you to transfer that asset to a trust which sells tax-free, reinvests the full proceeds, and pays you an income stream for life and ultimately passes the remainder to a charity that you get to designate.
• 8:36
  SPEAKER_00: We did a full episode on this earlier this year.
• 8:38
  SPEAKER_00: So if you haven't heard it, make sure you head on back and listen to that one because it was a big hit.
• 8:43
  SPEAKER_00: Exchange funds.
• 8:44
  SPEAKER_00: For very large single stock concentrated positions, and this is typically the 5 million or more range.
• 8:50
  SPEAKER_00: Exchange funds allow you to contribute shares into a pooled fund and receive a diversified interest in return without triggering immediate capital gains.
• 9:01
  SPEAKER_00: There is a lockup typically around seven years, and this is a more sophisticated strategy worth knowing about if you have a very concentrated position, but one you should talk to your advisor about and see if it's the right fit for you.
• 9:14
  SPEAKER_00: Let me tell you about a client.
• 9:15
  SPEAKER_00: Her name is Deborah.
• 9:16
  SPEAKER_00: Obviously, names and details have been changed to protect her identity.
• 9:20
  SPEAKER_00: Deborah was 61 years old and had recently retired from a 25 incredible year career as a chief human resource officer at a technology company.
• 9:30
  SPEAKER_00: She received things like RSUs throughout her career and had accumulated a significant position of her former employer stock.
• 9:37
  SPEAKER_00: And it was roughly around$2.1 million when I met her and had a cost basis around$340,000.
• 9:44
  SPEAKER_00: The unrealized gain was$1.76 million.
• 9:48
  SPEAKER_00: So she knew the position was large and she had been meaning to address it, but with her busy career, never had the time.
• 9:55
  SPEAKER_00: So just to paint the picture for you, she's 61, retired, 2.1 in former employer stock, 1.76 in unrealized gains that she had been meaning to address.
• 10:05
  SPEAKER_00: So we had to face this big problem.
• 10:08
  SPEAKER_00: In January, without consulting her financial advisor, she actually sold$600,000 of the position, trying to rebalance it, recognizing$500,000 in gains in the same year.
• 10:19
  SPEAKER_00: Her advisor then discovered that she had received$100,000 in deferred compensation payout that she had forgotten about.
• 10:26
  SPEAKER_00: When you combine this with some of the income that she still had trickling in from a couple months of work, it pushed her well into the salt phase out range.
• 10:34
  SPEAKER_00: And the combined federal and state tax bill on that year's gains was$195,000.
• 10:41
  SPEAKER_00: She also had$75,000 in unrealized losses in other parts of her portfolio that she hadn't harvested before the sale.
• 10:49
  SPEAKER_00: So here is what should have happened.
• 10:52
  SPEAKER_00: She should have done year-end planning session in September.
• 10:56
  SPEAKER_00: And if we had been working together, we would have identified the deferred comp payout coming in January, modeled out the salt interaction, harvested the$75,000 in available losses, and then timed the stock sale to stay below that salt phase out threshold.
• 11:12
  SPEAKER_00: The estimated tax savings from that sequence would have been approximately$52,000 on the single transaction.
• 11:20
  SPEAKER_00: So what did we do?
• 11:22
  SPEAKER_00: We rebuilt the strategy going forward.
• 11:24
  SPEAKER_00: The remaining$1.5 million position is being reduced systematically to$100,000 to$300,000 per year, depending on the year, and we're coordinating that with her other income, salt exposure, and charitable giving strategy.
• 11:39
  SPEAKER_00: And done right, this tax cost will save her over five years and a significantly overdoing a lump sum sale, but we can't undo what happened last year with her previous advisor.
• 11:51
  SPEAKER_00: Deborah's exact words when we mapped out what the plan should have been in year one was I didn't even know that I had that problem.
• 11:59
  SPEAKER_00: I just thought I should sell the stock and go into something more diversified.
• 12:04
  SPEAKER_00: That is the capital gains problem.
• 12:06
  SPEAKER_00: It's not complexity beyond anyone's ability to handle.
• 12:11
  SPEAKER_00: A problem that requires analysis before action, and it's one that most people don't get until after the fact.
• 12:18
  SPEAKER_00: And a lot of times it's something that can't be undone.
• 12:21
  SPEAKER_00: To wrap things up, I want to break down three actions that you can take from here.
• 12:25
  SPEAKER_00: Action number one is get a capital gains audit done this month.
• 12:29
  SPEAKER_00: Ask your financial advisor to pull a report of your current unrealized gains and losses across all taxable accounts.
• 12:36
  SPEAKER_00: And here's what you want to know: you want to know what positions have the largest gains, what is the cost basis, how long have they been held, and what losses are available to offset them.
• 12:49
  SPEAKER_00: This isn't a complicated ask, and it's a standard report that any advisor can produce at the click of a button.
• 12:55
  SPEAKER_00: And if yours can't produce it quickly, that is important information for you to have and take a look at.
• 13:01
  SPEAKER_00: Action number two, if you have any income events happening in Q4, this could be a bonus, RSU vest, deferred compensation payout.
• 13:10
  SPEAKER_00: Tell your advisor now before they execute any capital gain strategy.
• 13:15
  SPEAKER_00: Even if one of these events is going to happen later in the year and at the last minute, let them know as soon as you do because this could change everything.
• 13:25
  SPEAKER_00: The salt phase out interaction I just described is one example.
• 13:29
  SPEAKER_00: The sequencing of these decisions matters enormously.
• 13:32
  SPEAKER_00: Your advisor can't optimize for you if they don't have the full picture in a timely manner.
• 13:39
  SPEAKER_00: And action number three is if you have charitable goals and appreciated securities, have the donor advise fund conversation this month to see if it's the right fit for you.
• 13:50
  SPEAKER_00: A direct donation of appreciated securities to a donor advice fund eliminates the capital gains on those securities entirely if you are going to give away.
• 14:00
  SPEAKER_00: And many of you who are listening, this might be the most tax-efficient way to do it, but the mechanics, they take time to actually set up and get into place if you don't already have a DAF.
• 14:12
  SPEAKER_00: September is when you start that conversation, not November, not December, and especially not December 31st.
• 14:19
  SPEAKER_00: The capital gains problem is real.
• 14:21
  SPEAKER_00: The good news is that it's also very solvable with the right strategy.
• 14:26
  SPEAKER_00: The sequencing that has to be also set in place in motion and enough time to execute it well.
• 14:32
  SPEAKER_00: And you have that lead time right now.
• 14:35
  SPEAKER_00: So make sure you use it.
• 14:37
  SPEAKER_00: If today's episode gave you something specific to do this week, and my hope and intention is that it did, please make sure you are following along so you get the next episodes the moment that they drop.
• 14:48
  SPEAKER_00: And as you are going through the capital gains conversation with your advisor, if you don't feel good about it and want to get a second opinion or just want to start having a conversation with a new advisor, we've recently opened up our financial planning again for the end of the year.
• 15:03
  SPEAKER_00: So if this applies to you, head over to the link in our bio to make sure that you apply for an intro call and have a 15 minute call to discuss what capital gains and year end planning could look like for you.
• 15:16
  SPEAKER_00: Thank you so much for tuning into this episode of The Wealth Cafe, and I look forward to seeing you again next time.