A 0% federal tax rate on long-term capital gains and qualified dividends is achievable if your total taxable income, including those gains, remains below $48,350 for single filers or $96,700 for married couples filing jointly in 2025. Strategies include Timing asset sales during low-income years (e.g., retirement, job loss), using tax-loss harvesting to reduce taxable income, and maximizing deductions to stay under the limit.
If their income is below $98,900 (for a married couple), they can pay 0% tax on their long-term investment profits. Similarly, if you lost a job or your business income went down, you might fall into the 0% bracket. This gives you a great, unexpected chance to adjust your investments and pay less in taxes.
To qualify for 0% capital gains tax, you must have long-term capital gains (assets held over a year) and your taxable income (after deductions) must fall below specific IRS thresholds, which change annually but are roughly <$48,350 for single filers and <$96,700 for married filing jointly for the 2025 tax year, allowing for higher total income when combined with deductions like the standard deduction. The key is keeping your adjusted gross income (AGI) low enough so that after subtracting deductions, your taxable income remains within these limits.
One easy way to pay no income tax is to have little or no taxable income. For tax year 2025, taxpayers receive a standard deduction of $15,750 (singles or married persons filing separately) or $31,500 (marrieds filing jointly). For heads of households, the standard deduction is $23,625 for tax year 2025.
To have no federal income tax withheld, you must file a new Form W-4 with your employer stating you're "Exempt," but you only qualify if you owed no federal tax last year and expect to owe none this year; otherwise, you can reduce withholding by accurately filling out the W-4 using deductions and credits (like for dependents or other income) or by adjusting it with an online estimator to get closer to a zero balance at tax time, though you'll still owe Social Security/Medicare taxes.
Filing as exempt on a W-4 means no federal income tax is withheld from your paycheck, but Social Security and Medicare taxes will still be deducted.
To get less tax taken from your paycheck, submit a new Form W-4 to your employer, adjusting your filing status, dependents, or extra income/deductions to lower withholding, or use tax-advantaged accounts like 401(k)s, HSAs, or FSAs to reduce your taxable income, but use the IRS Tax Withholding Estimator to ensure you don't underpay and owe taxes later.
Here are five more strategies that you can use to get even more tax-free income:
On a $100,000 capital gain, you'll likely pay 15% for long-term gains, resulting in about $15,000 in federal tax (plus potential state tax), but it could be 0% or 20% depending on your total taxable income and filing status, while short-term gains are taxed as ordinary income (potentially 22-24%).
State capital gains taxes
States that do not tax income (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming) do not tax capital gains either. Washington state does not collect income taxes but has passed a capital gains tax as an excise (rather than income or property) tax.
To qualify for 0% capital gains tax, you must have long-term capital gains (assets held over a year) and your taxable income (after deductions) must fall below specific IRS thresholds, which change annually but are roughly <$48,350 for single filers and <$96,700 for married filing jointly for the 2025 tax year, allowing for higher total income when combined with deductions like the standard deduction. The key is keeping your adjusted gross income (AGI) low enough so that after subtracting deductions, your taxable income remains within these limits.
The IRS 7-year rule primarily applies to keeping records for claiming a deduction for bad debts or losses from worthless securities, allowing a longer period to file for a credit or refund, but it's not a universal audit limit; it's often a recommended safe buffer for general record-keeping, with the standard IRS audit period usually being 3 years, extending to 6 years for substantial income omission (over 25%) or foreign income issues, and indefinitely for fraud.
How to lower taxable income and avoid a higher tax bracket
One-time forgiveness, officially known as First-Time Penalty Abatement (FTA), is an IRS program that allows qualified taxpayers to have certain penalties removed from their tax accounts.
Some individuals or groups claim that taxpayers may refuse to pay federal income taxes based on their religious or moral beliefs or on an objection to using taxes to fund certain government programs.
Option 1: Use Your National Identification Number. The easiest way to avoid the 30% tax-withholding is to use your National Identification Number (NIN).
Change your tax withholding