QandAs: Legal

How do Capital Gains benefit Tax Payers?

Answer:
A Capital Gain is about the best thing that

can happen to a small business owner or anyone that sells a Capital Asset for that matter. It's a tax savings and it can be substantial depending on how much the sale is.

OK, so your not sure what Capital Gains are or how a sale is considered a Capital Gain. The "Gain" part of Capital Gains should give you a better idea. You are making a gain, this means you are profiting on the sale of something. The IRS calls anything that you own for business or personal investment a capital asset. When you sell a capital asset above the price you have paid it is considered a capital gain.

A capital gain that was owned for more than 1 year is only taxed 15% to the feds plus whatever your state percentage is. This is why the capital gain is so great. You may only be taxed on 21% of the sale of a capital asset compared to 30% or even 40% if the sale wasn't considered a capital gain.

It's imperative that you own your capital asset for longer for a year to reap the benefits of the tax savings.

The Capital Gain tax benefit may be in jeopardy. Republicans have promoted small business and investment opportunities by giving the tax cuts to capital asset owners. A Democratic President would likely increase some of these tax breaks to ensure they can pay for some of their projects. If Capital Gains taxes increase to 30% people will slow on purchasing investments such as stocks or starting a small business.