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How to Understand Capital Gains Tax

1.

Understand the difference in capital gains tax applicable to companies and individuals. The rates for individuals are less than the charges on companies.

2.

Ascertain the difference between long-term capital gains and short-term capital gains as well as a short-term loss and long-term loss. A short-term gain or short-term loss is defined as a gain or loss on the sale of an asset with a holding period of a year or less. A long-term gain or loss on the other hand is the gain or loss arising out of a sale with a holding period of over a year. Note that a short-term gain invites lesser tax rates while a long-term gain invites higher tax rates depending upon the tax bracket you fall under.

3.

Study the exemptions on capital gains tax.

4.

Review the law to keep track of changing tax rates.

Tips and Warnings

  • It is always better to seek the help of a professional advisor to understand the effect of capital gains tax on your investment.


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