How To Guide For: Understanding Capital Gains -- How It Is Calculated And How You Can Lower It

A Capital Gain is when the sale price of an asset is higher than the initial purchase price. The capital gains tax takes a percentage of all realized capital gains. A capital gain is said to be realized when the asset is sold. An unrealized capital gain is an asset that has increased in value, but has not been sold. The IRS can only tax you on capital gains that you’ve sold and collected. Examples of taxable gains are securities and real estate. If you use a broker to help buy and sell stocks and bonds, then the brokerage firm will send you a form at the beginning of the year called a 1099-B, which lists all of your earnings and losses from the sale of securities. If you sell real estate and make a profit from the sale, then that qualifies as a capital gain. Sales of art, jewelry, precious metals, stamps, coins and other valuable collectibles are also taxable as capital gains. So how is a capital gain calculated? You take the sale price of a capital asset like stock and real estate and subtract the original purchase price. Once you've figured out how much you've earned from the sale of each asset, you need to figure out how long you've owned each asset. The most important factor that determines your capital gains tax rate is your income tax bracket. How does one lower their capital gains tax? You can lower your capital gains tax by

avoiding short-term investments. Another way to lower your capital gains tax is by saving as much income as possible in a 401k, Roth IRAs and Traditional IRAs. To get more in depth information on what a Capital Gain is, how it is calculated and how to lower it click on the pictures below to read the articles.