Capital Gains Tax
A capital gains tax is a tax imposed on the profit earned from the sale of a capital asset. Another way of explaining capital gain is as profit realized from the sale or transfer of a capital asset. Capital assets can include items such as real property, stocks, and bonds. The calculation of the amount of a capital gain is the difference between the amount of money received for the capital asset from the transfer less the “cost basis” of the asset.
The “cost basis” is not just the simple purchase price (which is after-tax income) but rather the purchase price which is adjusted based on various factors, such as depreciation, and additional investments made in the asset. According to United States income tax law, capital gains are taxed at rates lower than those of ordinary income. There are some countries which do not have a capital gains tax and, as such, encourage sale transactions.
Different rules apply to long term capital gains tax and short term capital gains tax, mainly the tax rate. A long term capital gain is a profit that is realized from the transfer of a capital asset that had been held for more than twelve months while a short term capital gain is a profit realized from the transfer of a capital asset held for not more than twelve months.
There are various ways that a person may be able to reduce or even defer a capital gains tax. An example of a way to defer the tax is by making an installment sale according to which the purchaser makes payments over a period of time instead of in one lump sum. An example of a way to defer and reduce one’s capital gains tax liability is by giving equity to a charity.
Proponents of cuts in capital gains tax rates argue that such cuts would encourage economic growth, savings, and, create jobs. There are others who argue that capital gains tax is a form of double taxation when combined with income tax.
For more infomation on taxes choose from the list below. |
|
|
|
|
|
|
|
|
|
Banking - Business Finances - Economics - Insurance - Investing
Major Purchases - Personal Finances - Stock Market - Taxes
|
