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Long Term Capital Gains
There are two taxable income streams of interest to investors – tax on income and tax on capital gains. The first refers to tax on regular income payments as that derived from savings accounts, coupons on bonds or dividends on shares. The second refers to stocks and bonds where the increase in value of the underlying asset may also benefit the holder. This article refers to the second income stream, where the holder of a bond or stock is smart, or lucky enough to have held it while that asset has risen in value. Such capital gains also apply to property values which also rise and fall in value.
Capital gains can be either short-term or long-term. Short term capital gains are those derived from the sale of assets held in a portfolio for less than 12 months. Anything held over 12 months is termed a long-term asset. The reason for this diversification is connected to tax exposure. Short-term assets are typically taxed at rates equivalent to those at which regular income is taxed, around 35%. In order to encourage investors to put their funds into long-term assets, the government will only tax capital gains on those assets at a top rate of 15%.
Capital gains tax obligations occur each time a stock or bond is traded. However, smart investors who make use of tax-deferred accounts, such as those available to investors in retirement and pension fund accounts, can save considerable amounts on their tax exposure. Tax-deferred accounts essentially put the tax payment off to some later date in the future when the person’s income will likely be less, as will their tax exposure bracket.
Of course, as much as capital gains will incur a capital gains tax, a loss on a capital investment can also be used as a means of reducing one’s overall tax bill. In fact, losses in excess of a specific margin (some 3,000 to 5,000 USD) can also be transferred over to the following tax year.
Investors can also avoid paying long-term CGT by donating their real estate property to registered charities. If the sale of those assets would normally generate a CGT bill, then that tax would then be avoided as the taxpayer would receive a charitable deduction rated at the fair market value at the time when the donation was made.
For more infomation on tax savings choose from the list below. |
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Banking - Business Finances - Economics - Insurance - Investing
Major Purchases - Personal Finances - Stock Market - Taxes
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