The notion you've introduced needs to be clarified; however, doing so involves comprehending/explaining some rather technical accounting concepts.
- In the context of taxes, "capital gains tax" means "the liability a taxpayer owes a government as a result of income received from a capital exchange/transfer." Capital exchanges are ones wherein a capital (long term or non-current) asset is sold or purchased. Another type of capital exchange is one in which one receives a cash distribution of firm income (paid from net income) rather than a distribution of cash in the form of wages (paid from pre-net income cash). (For business owners who work in the firm they own, this is the difference between dividends and wages.)
- See the following to obtain an understanding of what a deferred tax asset/liability is: Deferred Tax Asset/Liability
The preceding concepts are pretty straight forward. What follows is where precision matters.
Blue:
- "Long term" regarding a deferral of any sort --> That is a non-concept as goes accounting (tax or financial). One either defers a liability's/asset's liquidation/realization or one doesn't. How long one defers realization of returns (deferred asset) or paying a debt (deferred liability) is what it is, a period of time, not more and not less, but it has no qualitative label, only quantitative ones. (Deferred 'til next year. Deferred for a year. Deferred for a decade. Deferred for a month. Other quantitatively specific periods of deferral.) Because the notion of "long term deferral isn't "a thing," one can qualify any period of time as "long term."
From a financial accounting standpoint, deferred tax assets and deferred tax liabilities are classified and reported as non-current; however from a tax accounting standpoint, one either did, as a result of one or more transaction events in the "just closed" accounting period, incur a tax liability or one did not.
Red:
In light of the above concepts, one sees that to defer a capital gains tax is to defer the liability to pay tax on a capital gains transaction. On can defer the liability associated with a taxable capital exchange/transfer in a number of ways. Among the best ways is to "gross up to FMV" the basis of the value of the underlying capital asset involved in the exchange. That's what happens when one transfers assets into certain types of trusts, for example.
- "Pushing" the incurrence of a tax liability into a future tax accounting and reporting period is how, for tax accounting purposes, a taxpayer defers a tax liability. The tax rate applicable to the tax liability is the rate that applies to the nature of the transaction(s) that give rise to the liability. Among the prime natures of such transactions is the receipt of cash, though in somewhat rare situations, the receipt of a claim to cash or cash equivalent can trigger the liability.
- When does one incur a tax liability? The instant one owes the government a tax sum.
- When does one calculate the tax liability? Just before one pays it. Why then? Because prior to then, it wasn't determinate, no matter how closely one might have previously estimated it. (That has to do with the passage of time and the fact that things can change between "now" and the future date on which one pays a debt. The same idea applies to expected receipts of (claims to) cash and other assets too; it's just that one is on the receiving end rather than the paying end.)
What follows is a highly simplified example, but the basic tactical approach applies to all forms of capital exchanges.
Buy, say, a share of stock for $10. Hold it for 20 years and learn it's FMV is $1000.
[*=1]Sell the stock and one will, on the day of the sale, have a capital gains tax liability on $990.
[*=1]Transfer the stock to a trust and the trust will own the stock at its FMV on the day of the transfer. When the trust later sells it, the trust (depending on what type of trust it is) will have a liability (or a loss) on the difference in price between $1000 and the selling price. The trust can pay the tax and then distribute the remaining cash to the trust beneficiary.
Though I've outlined the basic idea, there are many different tax liability (not the tax itself, which is the payment one make) deferral tactics. Doing that in one way or another is about what all the below pictured tactics are about.
we need to fix that but unfortunately they write the rules and all the dumb azzed righties back them up!
no reasoning with a rightie.
