Capital gains tax is incurred on all the profits resulting from the sales of assets such as stocks, bonds and property. This is probably the tax which the corporations or individuals pay on the net total of the capital gains. This is just similar to the income tax paid on other sorts of income. The money coming from this tax is provided to entrepreneurs and to investors making capital investments.
The amount of tax levied on depends on the tax bracket and the time frame for which the investment was held before selling. There are two categories in which the tax payment is made Short term capital gains tax rate and Long term capital gain tax rate. Short term is when investments are held for less than a year and long term is when the investments are held for more than a year. Long term rates are less than what is incurred on short term. The following table is for 2010 and will reveal the facts-
|
Ordinary Income Tax Rate |
Short term capital gains tax rate |
Long term capital gains tax rate |
|
10% |
10% |
0% |
|
15% |
15% |
0% |
|
25% |
25% |
15% |
|
28% |
28% |
15% |
|
33% |
33% |
15% |
|
35% |
35% |
15% |
Tax is incurred only when a stock is sold. No tax is paid before the selling the stock. If one buys a stock and never sells it, no tax payment is required. After 2010 there will be many provisions such as regardless of the tax bracket, the taxes will be incurred on dividends at the taxpayer's ordinary income tax rate, as compared to 15% for long term capital gains tax rate it will be increased to 20%, there will be reinstallation of the five-year 18% capital gains rate.
Like others the capital gains tax also faces criticism. These are- the capital gain tax is calculated upon the gains, however this is not inflation adjusted. This can be clear with the explanation that; suppose a gain is obtained due to inflation, which is not the real gain. Similarly, the gains which do not track inflation are treated as gains, but in fact they are losses. This is a much complicated theory and hence, criticized.
