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Capital Gains Taxable

Pretty much everything you own and use (your house, your furniture, your car, stocks or bonds, jewlry, artwork) can be considered a capital asset. When you sell a capital asset you make a profit or you lose money. For instance if you buy your car for $10000 and sell it for $6000, you have a capital loss in the amount of $4000. If you buy your car for $10000 and sell it for $11000, you have a capital gain in the amount of $1000 and that money is taxable! If you lose money from selling personal capital assets, you cannot use it as a tax deduction even though the opposite (the gain) is taxable.

There are two types of losses and gains called long term and short. If you hold the asset for more than a year, it is long term. So if you buy your car for $10,000 and sell it for $6000 six months later, it is a short-term capital loss. On the opposite side if you buy your car for $10,000 and sell it for $11,000 six months later, it is a short term capital gain. The gains and losses must be reported to the IRS regardless of whether or not they are long term or short term. However, the amount taxable is different based on the amount of gain or loss and whether or not they are long term or short term gains or losses.

You might have to make estimated tax payments on capital gain based on what you think you will make. This is an area that is easy for people to fall into lying or fudging the numbers. The problem with this, of course, is that if you estimate you will have a capital gain of $1000 and pay taxes on that but have an actual capital gain of $10,000 you still have to pay on that $10,000 and there is a penalty. In the long run, it's better to actually over estimate your capital gains rather than under estimate. Because it can be so confusing, it is also better to hire a tax professional to take care of your taxes for you so that you are not trying to figure out all of these laws by yourself. If you decide to do your taxes by yourself though, you can call the Internal Revenue Service for help or go on their website and find help that way.

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