Capital Gains Tax Information – Know More, Pay Less!

Learn More!

August 14, 2004
By Niles Brohey

Capital assets are assets such as shares, property, and businesses. The capital gains tax is levied on any profits that are realized from selling or exchanging such assets. Capital gains tax can be difficult to understand as it has many incarnations and differing rates depending on many varying criteria, but it pays to know more. Information on capital gains tax is not difficult to come by, and being informed can mean the difference between minimizing your taxes while maximizing you profits and seeing a large profit disappear in your tax return.

The first step is to familiarize yourself with how the rate you pay is determined. There are three key factors setting the tax rate which you will pay on most long term transactions – the level of income tax you pay, how long you have had the asset you are trading, and what category of assets the asset belongs to.

Assets held less than one year are termed short term assets. When exchanging short term assets the rate of capital gains tax is you will be charged the same the rate of personal income tax you pay. Assets held for one year or more are called long term assets. The capital gains tax rate charged when exchanging long term assets depends solely on your personal income tax band. If you who pay 15% income tax or lessm you long term capital gains tax is charged at a rate of 5%. If you those who pay more than 15% income tax then capital gains tax will be charged at 15%.

The most obvious resource in learning more about capital gains tax is the IRS itself, for more information on capital gains tax rates, refer to IRS Publication 544 (“Sales and Other Dispositions of Assets”). If you have a taxable capital gain, you may be required to make estimated tax payments. See IRS Publication 505, Tax Withholding and Estimated Tax, for information on estimated tax.

Eventually you will declare your capital gains in Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040 in your tax return. In the end however the best advice on capital gains tax can be received from a tax expert who can help you minimize your tax and maximize your profits!