Sample Essay on Capital Gains Tax

Capital Gains Tax

Capital gains tax refers to a type of tax that is levied on capital gains that are made by individuals or organizations. Capital gains are profits that an investor is able to make when he or she sells the capital asset under his or her ownership for a price that is more than the price at which it was purchased. To most investors, the tax levied on capital gains is viewed as a control measure to regulate the profits made by them.

Taxes that are levied on capital gains are not levied when an investor holds an asset but only when it is realized. For instance, an investor can have shares that increase in value each year but will not incur any capital gain tax on them until when they are sold. As a result of this, investors are able to hold on to their shares and only sell when they have made enough money from them. To most investors, this is an advantage since it gives them an opportunity to prepare and sell the shares only when they are sure that taxes will not affect their trading activities.

In most countries, the tax laws require investors to remit capital gain taxes. However, the laws on capital gains taxes vary from one state to another. The variations can be on when the tax should be remitted, the rates among other aspects. For instance, in the United States, individuals and business organizations are only required to remit capital gain taxes on the capital gains that they make annually. This gives investors the whole year to be able to trade with their shares and only pay taxes on capital gains at the end of the financial year.

When looking at capital gains tax, it is very important to note that only the net capital gains that are subject to tax levies. The reason for this is because, if a particular investor sells two stocks in the course of the year, one at a profit and another at a loss, the amount of capital loss that is made from the losing share or investment will counteract the capital gains realized from the profitable investment. The most common capital gains today are incurred from the sale of bonds, stocks, property and precious metals.

It is always in the interest of every investor to make profit from every investment. However, it should be noted that declaration of capital losses on tax returns can be an effective consolation prize in most occasions. Capital losses have very mild effects on earned income in the subsequent tax years, but can be wholly applied against capital gains in the future. It is always important that investors should first familiarize themselves with the prevailing tax laws before making any investments. This will help in strategizing on how to best do business without working just to pay taxes. With better knowledge on tax laws, you can be able to determine the best investment venture that can be profitable.

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