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Capital gains tax is a form of taxation that applies on most countries. Capital Gains Tax (CGT) is the tax that is applied on the profit or gains of vending of a non-inventory asset. This tax takes effect on assets that are purchased at a lower price; some examples of capital gains are the sale of properties, precious stones, bonds and stocks. It is noticeable that the assets that undergo appreciation, which is the increase of value of the asset as time passes by, are considered to be sources of capital gains by the time it will be sold. There are also countries that do not have taxation schemes regarding capital gains like Argentina, Barbados, Ecuador, Jamaica, Pakistan, Singapore and Switzerland.
Capital gains tax policies vary from country to country. There are countries that have lower tax rates with regards to capital gains but there are also countries that apply higher tax rates. In the United States, capital gains are taxed just like an ordinary income but at a privileged rate. This means that capital gains tax comes at a lower tax rate in contrast to income tax. This encourages the investors to formulate investments on capital and it also helps in the continuous operation of businesses. Taxing parameters also differ based on the tax bracket where the investor belongs and the amount of time before the business was sold. Different tax rates apply on short-term capital gain and long-term capital gain. Short-term capital gain is taxed by means of the same tax rate used for the investor's income tax. This also implies the gain that will be achieved after selling an investment that was held for one year or less. Long-term capital gain is taxed at a lower rate; it is the profit that will be achieved after selling an investment that was held for more than one year.
The capital gains tax rate for the year 2005 varies according to short-term capital and long-term capital gains. The tax is also dependent on the ordinary income tax rate. For this year, the following parameters are set for the computation of capital gains tax: 10% short-term capital gains tax rate and 5% long-term capital gains tax rate apply for individuals that have 10% ordinary income tax rate, 15% short-term capital gains tax rate and 5% long-term capital gains tax rate apply for individuals that have 15% ordinary income tax rate, 25% short-term capital gains tax rate and 10% long-term capital gains tax rate apply for individuals that have 25% ordinary income tax rate, 28% short-term capital gains tax rate and 15% long-term capital gains tax rate apply for individuals that have 28% ordinary income tax rate, 33% short-term capital gains tax rate and 15% long-term capital gains tax rate apply for individuals that have 33% ordinary income tax rate, 35% short-term capital gains tax rate and 15% long-term capital gains tax rate apply for individuals that have 35% ordinary income tax rate. |
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