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Stock Capital Gains Tax

When profit is made by sale of stock, Capital Gains Tax has to be paid. It is important to know the implication of tax on trading of stock, so that you can maximize your gains and minimize taxation. Many people like to have investments in stocks so that they can be sold at a future date for a profit, to tide over certain expenses like college fees for children or having a secure retirement. Any form of income is subject to tax and income from sale of shares is no exception. The tax for this form of income is classified under Capital Gains, as you have earned from the selling the actual capital of stock.

The rate of Capital Gains Tax will depend on how long you have held the stock. The time for which the stock was held, is determined by the tax department, by taking into account the buy date and sell date of the shares. It is important to note that it is not according to the settlement dates, but the dates where the stock was actually traded.

When the stock is bought and sold within a year's time, it will attract more tax. If you hold it for more than a year before selling it, your tax liability is less. When you have sold shares within the year of purchase, the income is clubbed with your other personal income and taxed accordingly. This works out to be a high rate, and you will be taxed according to the income bracket you have reached.

Stock held for more than a year attracts 15% Capital Gains tax if you are in the higher income brackets. If you are in the two income brackets which are the lowest then you have to pay 5% as Capital Gains Tax. This rates of stock capital gains tax are reduced rates which came into being in 2003 and was supposed to expire in year 2008. But since it was received favourably by all, this rate is extended up to 2010. This was possible because of the signing of a new law called the Tax Increase Prevention and Reconciliation Act by President Bush in 2006.

It should be noted that the capital gains tax is charged only if you make a profit from the sale of stock. If you are trading in many different stocks, then the total trade during the year is taken into account to see whether you have made a profit or loss.

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Distribution Plan - a distribution plan is a plan executed by mutual fund companies. The purpose of the plan is too collect and assesses fees to shareholders of the funds, to offset expenses. The expenses could be for advertising costs or sales incentives (rewards for good behavior). The distribution plan...

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