subject: What Your Should Know About The Capital Gains Tax [print this page] Capital Gains tax (CGt) is a federal tax penalty that is imposed on capital accumulation, investment and productivity. Some of the income that is subject to taxes includes the sale of an investment, a home, a family business, a farm or ranch or even a work of art. The capitals gain is applied on the difference between the price paid for an item and the money received from selling it, or the capital gain. The most common form of capital gain for people is the sale of their corporate stock.
The capital gains taxes rate for individuals is currently at one of its highest rates ever and is at 28% while the corporate rate is at its greatest level in history, namely 35%. There is an inequality with capital gains tax in the fact that people must pay taxes on all of their gains but are only able to deduct a portion of their losses. This particularly applies to investments that fluctuate between gains and losses over time. In many states taxpayers are liable, not only for the federal CGt but also the state's own form of this tax. This can actually take the combined rate to almost 40%. California, Montana and Rhode Island are amongst the highest in the country.
For the government, the tax payment represent 6% of personal and corporate income tax receipts and 3% of total federal revenues. There is a lot of controversy surrounding the gains tax that individuals and corporations have to pay but it actually brings in much less revenue for the federal government than most people would think. In fact, the total collections during the 1990s were between $25 billion and $30 billion a year. In the USA, capital gains are not indexed for inflation which means that the seller pays CGt on the real gain and also on the gain attributable to inflation. This is one reason that the taxes is lower than regular income tax rates.
In other countries, such as the United Kingdom, the CGt rate is much higher (over 40%) but there it is actually indexed to inflation. The difference between capital gains tax and all other forms of federal tax is that it is basically a voluntary tax. People can avoid paying any of the tax by simply not selling their assets. This is becoming increasingly common, especially with the uncertainty of the stock market, and the government estimates that there is $7.5 trillion of unrealized CGt which would all be subject to capital gains tax if it was sold.
