Definition
A capital gains tax is a tax on capital gains, the profit realized on the sale of a non-inventory asset that was greater than the amount realized on the sale. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property. Not all countries implement a capital gains tax and most have different rates of taxation for individuals and corporations.
Capital Gains Tax
A type of tax levied on the capital gains earned by an organization or an individual is called the capital gain tax. A capital gain, on the other hand, is the profit that is realized by the investor when they sell their capital assets for a higher value than they bought it for initially. Capital gain taxes get activated only when there is a realization of an asset and not when it is held by the investor. The investor may hold a certain number of shares that may appreciate every passing year, and there will be no capital gain incurred on it. However, as soon as the investor sells the shares, capital gains tax will begin its implementation on the shares. Similar is the case with other assets.
More about Capital Gains Tax
There are many countries in the world that have tax laws that have a capital gains tax levied on the capital gains that an investor has. The capital gains tax laws vary from country to country. In the U.S., however, corporations and individuals are subjected to capital gains tax on the net capital gains they incur annually.
It is important to keep in mind that the taxable capital gains are the net ones. For example: if an investor sells two equal shares in a year, one for a loss and one for profit, the capital loss he incurs on one of the shares will counteract with the profit. Thus, in this case, there will be no capital gains tax for the investor in the mentioned year.
Most commonly, the capital gains are realized from the sale of precious metals, stocks, property and bonds. There are different taxation rules in different countries when it comes to capital gains tax. Similarly, the rates for corporations and individuals in different countries are also different for the capital gains tax. The fiscal obligations related to the capital gains tax also vary from country to country, and from state to state.
Further Reading
- Capitalization of capital gains taxes: Evidence from stock price reactions to the 1997 rate reduction – www.sciencedirect.com [PDF]
- Start-ups, venture capitalists, and the capital gains tax – www.sciencedirect.com [PDF]
- Some aspects of the taxation of capital gains – www.sciencedirect.com [PDF]
- How burdensome are capital gains taxes?: Evidence from the United States – www.sciencedirect.com [PDF]
- Transitional dynamics of dividend and capital gains tax cuts – www.sciencedirect.com [PDF]
- Capital gains tax and equity values: Empirical test of stock price reaction to the introduction and reduction of capital gains tax exemption – www.sciencedirect.com [PDF]
- Effects of tax integration and capital gains tax on corporate leverage – www.jstor.org [PDF]
- Capital gains tax rates and the cost of capital for small business: evidence from the IPO market – www.sciencedirect.com [PDF]
- Taxation and corporate payout policy – pubs.aeaweb.org [PDF]
- Optimal consumption and investment with capital gains taxes – academic.oup.com [PDF]
