There’s some confusion for some about what the capital gains tax is, especially if they’ve sold an asset or they’re new to trading. It’s a tax that’s levied on the profit an individual makes when they sell an asset or investment. The asset can range from real estate to stocks and bonds. The amount of tax is determined by how much the asset has appreciated in value during the time it was held by the owner.
The rate of tax is also dependent on the filer’s income bracket. The tax can range from 0% to 15% or 20%. A long-term capital gains tax is assessed if an individual has owned the asset for a year or more. Short-term capital gains taxes will apply if the investment has been owned for less than a year and will be taxed according to the individual’s normal tax rate.
Unrealized capital gains refer to unsold investments. It doesn’t matter how much in assets an individual has, how long they’re held, or how much they’ve increased in value. Purchasing or investing in an asset and keeping it over the long term is a way of building wealth that can be passed on to heirs.
Maximizing profitability and minimizing capital gain taxes requires careful, well-though out strategies. For tax purposes, a purchased asset is typically treated the same as if was a salary or wages. The same is true of dividends derived from an asset.
An increasing number of people are using software applications to trade online. The thrill of buying and selling can override any benefits if they’re not aware of the capital gains taxes they’ll have to pay or if they don’t understand IRS laws.
However, taxable gains can be offset by capital losses. A maximum tax of $3,000 per year is levied on net losses. Leftover losses can be carried forward into following tax years.
At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs. We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!