Smart and Simple: Everyday Capital Gains Tax Strategies

Not every capital gains tax strategy requires complex trusts or irrevocable planning. Some of the most effective techniques are surprisingly simple and can be implemented by anyone with appreciated investments. These foundational strategies can save thousands of dollars annually and millions over time—all while maintaining complete control of your assets. 

Strategy #1: The Annual “Free Money” Approach 

Washington gives every taxpayer an annual gift: approximately $275,000 in capital gains that can be realized completely tax-free each year (the exact amount is adjusted for inflation). Most people either don’t know about this benefit or fail to use it systematically. 

Instead of holding all your appreciated investments indefinitely, you can strategically sell a portion each year up to the exemption limit, immediately reinvest the proceeds, and pay zero Washington state tax. 

Example in Action:

Jennifer owns $2 million in Apple stock with a cost basis of $400,000. Rather than holding it all and facing a potential $140,000 state tax bill if she sells everything at once, she can: 

• • Sell $275,000 worth each year (using the full exemption) 
  • Reinvest immediately in a diversified portfolio
  • Complete the process over about 6 years with zero state tax

 Each sale resets the cost basis of the sold shares to current market value, potentially eliminating future tax obligations entirely. 

Strategy #2: Family Gift Planning 

Washington doesn’t tax gifts, which creates a unique opportunity to spread tax benefits across family members. Because each individual receives their own $275,000 annual exemption from Washington’s capital gains tax, gifting appreciated assets before a sale can significantly increase your household’s tax-free capacity.

By transferring portions of appreciated assets to family members—such as adult children—before selling, each person can utilize their own exemption. This strategy can dramatically reduce or even eliminate your total state tax liability.

Example in Action:

Robert and Maria hold $1.5 million in appreciated stock and have two adult children. If they sell the entire amount themselves, they would face approximately $86,000 in Washington State capital gains tax.

Instead, they gift $375,000 in stock to each child and retain $750,000. Each family member sells their portion and uses their individual exemption. The result? Zero Washington State tax on the full $1.5 million.

There are a few important considerations to keep in mind: 

• • Gift over $18,000 per person (2025 limit) require filing a gift tax return
  • Recipients inherit your original cost basis
  • Works best when recipients are in lower federal tax brackets

Strategy #3: Strategic Location Planning 

For families with flexibility, timing a move between states can have a dramatic impact on overall tax liability. Washington determines capital gains tax based on your domicile (legal residence) at the time of sale. If you can establish domicile in a no-tax state before selling appreciated assets, you may be able to avoid Washington’s capital gains tax entirely.

Some of the most favorable states for this strategy include: 

• • Nevada – No capital gains tax, no income tax, and strong asset protection laws
  • Wyoming – No income tax and robust privacy protections
  • Florida – No income tax and no estate tax
  • Texas – No income tax and a business-friendly environment

Establishing domicile, however, requires more than just purchasing property. To make the move count for tax purposes, individuals must spend the majority of their time in the new state, register to vote there, obtain a driver’s license and register their vehicles, move banking and professional relationships, and demonstrate a clear intent to stay permanently.

Example in Action:

A retired couple with appreciated assets plans to sell in the coming year. By relocating to Florida and establishing domicile before the sale, they avoid Washington’s capital gains tax entirely.

This strategy is most practical for retirees or individuals with location flexibility. For most working professionals, relocating solely for tax purposes may not be feasible.

Strategy #4: Retirement Account Maximization 

One of the best-kept secrets: assets held in retirement accounts are completely exempt from Washington’s capital gains tax. This creates opportunities for strategic asset location. 

The strategy involves, holding your most highly appreciated assets in tax-deferred accounts, keeping stable, lower-growth investments in taxable accounts, and when retirement distributions occur, paying ordinary income tax (federal) but no capital gains tax (state). 

A more advances strategy considers Roth conversions during lower-income years. Converting traditional IRA assets to Roth status triggers the federal toggle income tax but avoids future capital gains tax on growth. 

Strategy #5: Charitable Giving (The Simple Version) 

While Charitable Remainder Trusts are powerful, simple charitable giving can also provide significant benefits. 

Instead of selling appreciated stock and donating the cash proceeds, consider donating the stock directly to a qualified charity. This simple move allows the charity to receive the full market value, while you avoid all capital gains tax and still receive a federal income tax deduction for the full amount. Since charities can sell the stock tax-free, this strategy maximizes the impact of your gift and your tax savings.

Example in Action:

Tom wants to donate $50,000 to his university. He owns stock worth $50,000 that he bought for $10,000. If he sells the stock first, he pays ~$9,500 in combined federal and state taxes, leaving only $40,500 to donate. If he donates the stock directly, the university gets the full $50,000, and Tom saves the $9,500 in taxes while getting a $50,000 deduction.

Strategy #6: Business Structure Optimization 

For business owners, how you structure ownership can dramatically impact capital gains tax exposure. 

Certain business assets may qualify for exemptions or reduced rates under Washington’s capital gains tax. Qualified Small Business Stock (QSBS) can be completely exempt from both federal and state taxes. Family-owned small businesses with under $10 million in revenue may also qualify for Washington-specific exemptions. Additionally, real estate held in business entities continues to benefit from the state’s real estate exemption.

Business owners contemplating exits should review entity structure well before sale to optimize tax outcomes.

Strategy #7: Timing and Installment Sales 

When selling large assets, timing can significantly impact your tax burden. One effective strategy is using installment sales, where you structure the sale to receive payments over multiple years rather than all at once. This approach allows you to spread the gain across several years, making it possible to use multiple years of annual exemptions, potentially stay below the $1 million threshold that triggers Washington’s 9.9% rate, and defer tax liability—which may be beneficial if future rate changes occur.

Year-end planning is also key. By monitoring your annual gain realization throughout the year, you can make informed decisions about when to sell. If you’re approaching the exemption limit, it may be wise to defer additional sales to the following year to avoid triggering higher tax rates.

While each of these strategies may seem modest on their own, their combined impact over time can be dramatic.

Example in Action:

The Johnsons implement several simple strategies to manage their capital gains. 

• • Annual gain harvesting: $275,000 tax-free each year
  • Family gifts: An additional $275,000 annually to their adult son
  • Strategic charitable giving: $100,000 annually in appreciated stock 

Together, these moves create a total annual tax-free capacity of $650,000. Over 10 years, they could realize $6.5 million in gains with zero Washington state tax—resulting in estimated savings of $455,000 compared to unplanned sales.

Getting Started: Your Planning Checklist 

If you’re looking to take action before year-end, here are a few immediate steps to help you get started with tax-efficient planning:

• • Inventory your appreciated assets: Identify positions with significant unrealized gains
  • Calculate your capacity: Determine how much you could sell annually using exemption 
  • Review family structure: Consider gift planning opportunities with spouse and children
  • Assess timing: Identify upcoming events that might trigger large gains

You don’t need million-dollar trust strategies to benefit from smart capital gains tax planning. These simple techniques, consistently applied, can save substantial amounts while maintaining complete control over your assets. 

The key is systematic implementation rather than one-off transactions. The families who benefit most treat tax planning as an ongoing process, not a crisis response to unexpected events.