Q: What Is The Capital Gains Tax?

A: The capital gains tax is tax charged on money that you earn on a given item or stock. This is applicable to almost anything that you can think of -- from homes to stock, from physical assets, to things that appreciate in value over time. Capital gains taxes can be found almost everywhere, too - in real estate and in small business, in personal finance, and in huge multinational corporations.

When you buy a stock at twenty dollars a share, for instance, and you hold onto it for a while, it increases in value to fifty dollars. The presence of a capital gains tax means that you will be charged interest on the thirty dollars you earned as a result of owning the stock that originally cost ten dollars.

Capital is money -- it is what allows businesses to grow and flourish, corporations to expand, and individuals to become more and more affluent. Capital drives the economy, which in turn drives employment, which generates more money that is spent on necessities and pleasure, which therefore generates further capital. Capital is absolutely necessary, and capital gains taxes ensure that the government is able to remain well funded thanks to the power of business and progress.

Q: How Does It Apply To Business?

A: On everything that the company, corporation, LLC, or partnership makes, you will be taxed. Think of the capital gains tax as an income tax for the business entity -- though the rates may not be the same, and though they may vary from state to state and tax bracket to tax bracket, they are ubiquitous. More often than not, capital gains taxes are lower than regular income taxes, and this is meant to generate interest in the business.

When an asset increases in value, it is said to appreciate. This appreciation is not realized until the asset is sold, and then the company must claim it on its taxes. Depending upon how large the business is and how much the business makes on a quarterly basis may determine the state and the federal capital gains taxes as they apply to the capital earned. In essence, the more a business makes, the lower the tax percentage might be.

Q: How Does It Apply To Personal Finance?

A: In personal finance, the capital gains tax applies much the same as to a business, but on a much smaller scale. If you make a sale of a certain amount of money or over after paying less for an object or a stock, then you can expect to have to claim whatever it is on your tax returns. The percentages here are less than or equal to the regular income taxes, because individuals are a part of a domicile, whereas businesses and corporations are large entities with even larger presences.

Fortunately, as with businesses, you don't need to pay taxes on what you gain until you sell your stock, your boat or your car. The IRS demands a cut of this just as they take a cut of your paycheck.

Q: I'm A Homeowner. What Does It Mean To Me?

A: If you want to sell your house, you are going to have to watch out for capital gains. Depending upon what tax bracket you fall into, these taxes can take a large chunk of the funding from the sale of your home, and may indeed prove to be quite a burden. In some cases, they can be upwards of ten or twenty percent, which certainly seems quite a lot: twenty dollars for every hundred, two hundred for every thousand, two thousand for every ten thousand, and so on.

There are some ways that you can avoid paying such a hefty tax, though, even on a home. The answer is relatively simple:

Invest for the long-haul.

Whether it is in an IRA, in another home, or, indeed, in some other form of retirement fund, your capital will be able to grow untaxed until such time as you realize it fully. So, with this advice, good luck, and may good fortune smile upon you!


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