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Tags: finance, taxes, capital gains tax
 Capital gains tax is also one classification in the tax laws. If you had a transaction qualified in the category, you better pay your obligation to the government. Actually it is a voluntary act which is paid only when a capital asset is sold. Taxpayers can legally avoid it if they will decide to hold their properties.
You can be taxed on the transaction if you sell the property at a price higher than the purchase price. You might be wondering what capital assets are. For tax purposes, these are properties not usually used in the normal operating cycle of a business. It also excludes receivables acquired in the ordinary course of the business.
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Common examples of assets are car, house, bonds and others. It is very important to distinguish capital assets from other kinds of assets. Actually, almost everything you own whether for investment purposes or personal use is capital asset. The tax is charged per transaction made by a taxpayer. The properties are also classified into two groups.
There are short-term assets which constitute properties held for less than a year. On the other hand, long-term assets have been in your possession for more than a year. The basis for the computation of capital gains tax is the selling price of the property less the purchase price. In the computation of the liability, the Internal Revenue Service is using cost basis principle.
The computation is just simple. In each investment, you will know if you have a gain according to the formula: selling price less selling fees and commissions less the purchase price. If the result is positive, then you have a gain from the transaction. If negative, then of course, it’s a loss.
That’s why it’s called capital gains tax because of the gain realized by the taxpayer. However not all times, gains are realized. There are also instances of losses. In this case, the losses actually incurred can be deducted from the gains. If the losses exceed the gains, the excess can be used as a deduction in the return.
Capital gains tax is calculated using the applicable rate. The rates will still depend on your tax bracket. There are two brackets you can choose from. Either you belong in the 15% bracket or greater than 15%. The said brackets are based on your ordinary income. The rate applicable will be based on the type of capital asset involved.
There are also means when a taxpayer can defer or reduce the amount of capital gains tax liability. One example is applying installment sales method. You as a seller can collect payment from a buyer through a period of years. Another is by giving equity to charities. After determining the amount of the capital gains tax, you will now fill out a form from the IRS called Form 1040 Schedule D.
You can just download the form online for your convenience. It is good if you have general knowledge about the tax laws in your estate. Paying taxes is your responsibility and you must be aware about the laws that govern it.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
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