Capital gain tax rates has always been a topic of big debates in most countries. Many people disagree with the rules and regulations set by governments, as far as the tax rate is concerned. However, these taxes need to be recovered from people and hence being aware about this concept is essential.
Capital Gains Tax Facts
A person is said to have made a capital gain if he has earned an amount over the investments done in a year. The investments need to have been done using one's own money. The tax rate largely depends on two important things.
The first one is the tax bracket in which an individual falls and the next one is the time for which he had held on to the investment before selling it and making profits. Capital gain is of two types - short term and long term. The tax rates are different for both of them.
Most governments are in favor of encouraging people to be long term investors in different fields of investments such as stock markets, real estate, mutual funds, etc. So, the long term investments are less taxed whereas, the short term investments are taxed at the rate which is levied for normal income tax paid by an individual.
The capital gains tax rates are fixed by the tax authorities and should be followed by all. The short term capital gain rate is ten percent, for those in the ten percent tax bracket, and fifteen percent for those who come under the fifteen percent tax bracket.
On the other hand, the long term tax rate is zero for people falling into the ten and fifteen percent tax bracket. The people falling under the tax bracket of twenty five percent, twenty eight percent, thirty three percent, and thirty five percent have to bear the same percentage of short term tax rate respectively.
However, the long term tax rate is around fifteen percent for people falling into these four tax brackets. This shows that long term investments are less taxed as compared to the short term investments. Short term capital tax is applicable for all investments withdrawn or sold before a year of continuous holding.
If you hold on to your investments for more than a year, then you get the advantage of saving money on taxes. Those investors who are active in stock trading for a short period should remember that they should not hold on to a particular stock just for the sake of saving taxes.
If the stock is a volatile one, then they should consider the option of exiting from it at attractive valuations before it crashes down giving no returns or negative returns. Just being aware of the tax rate is not enough. It is expected from all investors that they honestly declare all capital gains, which they got in the financial year.
In many places, there is provision of filing for disclosing capital gains with the company where a person works or a certified public accountant. The right details disclosed by you will help in deciding your total income for the year and tax liabilities accurately.