Capital gains tax, also known as CGT, is a tax charged against any gains made from capital. The most common capital gains are made through the sale of stock, bonds, property and precious metals.
In the United States, both corporations and individuals pay income tax on the net total of all their capital gains, as well as all other income. Individuals, however, pay far less tax on long term capital gains. Different rates of capital gains tax is placed on individuals, couples, head of households and corporations.
To qualify as 'long term', the asset that has gained value must have been held for over one year before being sold on. If you have an asset that is les than 12 months old that you wish to sell, it may be worth waiting until you have owned the asset for a year to reduce the rate of tax paid.
In 2003, the rate of tax on long term capital gains was reduced to 15% for corporations. However, if no agreement is made by 2010 no extension will be granted, the rate will return to its original tax rate of 20%. For individuals in the two lowest income tax brackets the capital gains tax is 5%.
Short term capital gains are charged at the same rate as the income tax rate that you pay.
If you are unsure about what rates apply to you, check online, as there are plenty of graphs and charts that will help you work out any and all kinds of tax.
There are several ways of deferring or reducing capital gains tax in the States. Tax Loss Harvesting sees tax losses carried forward, and can be applied to offset capital gains far into the future. Another method is to donate equity to charity. Taking payments in instalments over a number of years from the buyer will also reduce the capital gain tax.
The United States has an extremely complex tax system, and is not comparable to any other country in the world. Capital gains tax is an argued subject in politics, and the rates are subject to change following this article. Tax law capital gain can be a very confusing matter, and unless you are extremely number minded, for the best financial advice you should speak to your accountant, who will be able to provide full assistance with any sales, taxes and changes. You can also consult the IRS website for more information on rates and future changes.