What is Captial Gains Tax, and How Does Captial Gains Tax Work
The ins and outs of capital gains tax!
Capital gains are the profits that are made from selling a capital asset, such as a business, part of the land, stock, a work of art, and so on. Capital gains tax is a tax that is levied on the positive difference between the sales price of an asset and the cost of its original purchase.
When an asset that is a capital asset is sold or exchanged, a capital gain is realized. The capital gains tax is levied in such a way that it takes a percentage of all realized capital gains. While an unrealized capital gain is an asset that increases in value but has not been sold. So, the IRS can only levy a capital gains tax on the capital gains that you’ve sold and collected.
When do you pay capital gains tax?
The capital gains tax is due only once you sell your investment. For example, when your asset or stock gains value inside your portfolio, you don’t owe any tax. But, once you sell the shares, the profit you make must be reported on your tax return. And that is when you pay a fee on it at the capital gains rate.
Short-Term and Long-Term Capital Gains
The federal government levies tax on all capital gains. Capital gains and losses are categorized as long term if an individual held the asset for more than one year, and it is classified short term capital gains if it was held for a year or less.
The government taxes short-term capital gains as ordinary income at rates that go up to 37 percent, while long-term gains are taxed at lower rates and up to 20 percent. Taxpayers with modified adjusted gross income above specific amounts are subject to an additional 3.8 percent net investment income tax that is levied on long- and short-term capital gains.
You will be taxed a higher rate on short-term capital gains and a lower rate on long-term capital gains, which is done deliberately by the government in order to discourage any form of short-term trading. It is a known fact that trading stocks and other assets frequently increases the risk and makes the market highly volatile. It costs more in transaction fees to individual investors.
Standard Tax Rates
All short term capital gains are levied a tax at the regular income rate. From a tax perspective, holding on to investments for more than a year is a good option as long-term capital gains tax rate is much lower than a short term gain.
An example of how capital gains tax works
If you have a property that you are going to sell, to figure out what your capital gains are, subtract the cost price from the price you sold the property for. The IRS allows you to deduct some of the sales expenses, such as advertising and real estate commissions, from the sale price, lowering your total gains.
If the property that you own and want to sell is a real estate investment rather than your home, the wear and tear, of the property over the years amount to depreciation. The amount will be deducted from the sales price of the property.
How Capital Gains Tax Affects the Economy
Some studies show that 70% of the capital gains accrued go to individuals in the top 1% of income earning group. Everyone else keeps their assets in a tax-deferred account like 401(k)s and IRAs. It creates a tax benefit for the top 1% and the people who earn and make a living off of investment income are subject to pay not more than 20% in taxes.
Are you entitled to lost money and assets?
There are many people in the U.S. who are unaware they are entitled to unclaimed money and assets. As a result, nearly $60 billion in lost money has been accumulated thus far. With tens of millions of people not knowing they have money coming their way, you could also be one of them. To find out if you are entitled to unclaimed money and unclaimed assets, you can use an online lost money search.
To find the money, all you have to do is enter your name into the search field in THIS link. Once your name is entered into the directory, the search engine will scan public records registered to your name to find out if you have any assets and money you are entitled to. If you are indeed entitled to such funds, you can fill out a form requesting to get back what belongs to you and receive the money/assets within 120 days from the application.
Are you owed unclaimed money?