Capital Gain

A capital gain is a profit from the sale or exchange of an investment or property. You can’t have a gain until an asset is actually sold. The capital gain can be short term (less than a year) or long term (more than a year) and you have to claim it on your income taxes so the government can take a slice, which is known as the dreaded capital gains tax.

Capital gains are usually thought of as stocks and funds since their price goes up and down a lot, but in actuality, capital gains can occur on any type of security that you sell for a higher price than what you paid for it. Conversely, a capital loss means there was a decrease in the capital asset’s value compared to what you paid for it.

Short-term capital gains are taxed as regular income based your tax filing status and gross income. Long-term capital gains are usually taxed at a lower rate. For example, the long-term capital gains tax rate is 20% in the highest tax bracket. Most people will be able to get a 15% long-term capital gains tax rate. People in the 10% and 15% tax brackets don’t have to pay anything on long term capital gains.

 

Capital gains can be applied to pretty much anything. It’s not just for rich people or mature businesses. The difference from value purchased to value sold is where the capital gain comes in. However, it doesn’t include any income you generate from your actual business.

 

If you’re smart about it, you can use losses in other areas to offset capital gains.

 

EXAMPLE:

You’re telling me that selling my TV for a profit will make the IRS come after me for a capital gain? That is some kind of BS, man!

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