Capital Gains Taxes

A capital gains tax (CGT) is a tax charged on capital gains, which is the profit reaped on the sale of a non-inventory asset that was purchased at a lower price. Most capital gains are from the sale of stocks, bonds, precious metals and property.

Regarding equities, an example of a popular and liquid asset, each state legislation has an assortment of obligations that must be respected when it comes to capital gains. Taxes are charged by the state over the transactions, dividends and capital gains on the stock market. However, the obligations can vary from state to state. This is primarily because it is sometimes assumed that taxation is already built into the stock price through the different taxes companies pay to the state, or it can also be because stock market operations that are tax-free are helpful in boosting economic growth.

"In the United States, individuals and corporations pay income tax on the net total of all their capital gains just as they do on other sorts of income, but the tax rate for individuals is lower on "long-term capital gains," which are gains on assets that had been held for over one year before being sold. The tax rate on long-term gains was reduced in 2003 to 15 percent, or to 5 percent for individuals in the lowest two income tax brackets," says Wikipedia. "Short-term capital gains are taxed at a higher rate: the ordinary income tax rate. The reduced 15 percent tax rate on eligible dividends and capital gains, previously scheduled to expire in 2008, has been extended through 2010 as a result of the Tax Increase Prevention and Reconciliation Act signed into law by President Bush on May 17, 2006 (P.L. 109-222). In 2011 these reduced tax rates will "sunset," or revert to the rates in effect before 2003, which were generally 20%. President Obama's budget, announced on February 25, 2009, calls for the Capital Gains Tax to be reverted to the 20% rate before the Sunset date of 2011."

"The IRS allows for individuals to defer capital gains taxes with tax planning strategies such as the Structured sale (Ensured Installment Sale), charitable trust (CRT), installment sale, private annuity trust, and a 1031 exchange." Wikipedia continues. "The United States is unlike other countries in that its citizens are subject to U.S. tax on their worldwide income no matter where in the world they reside. U.S. citizens therefore find it difficult to take advantage of personal tax havens. Although there are some offshore bank accounts that advertise as tax havens, U.S. law requires reporting of income from those accounts and failure to do so constitutes tax evasion."