While many Americans understand that their tax dollars go to many important things that our democracy requires, including funding our roads, military, law enforcement, health services, agricultural oversight, lawmakers, benefits for the poor, as well as education, most people do not want to overpay.
Tax Law Changes and Updates
The U.S. tax laws change on a regular basis in America. On any given year, the amount allocated to be written off for certain things can be higher or lower. Additionally, the base tax rate on many things can fluctuate from year to year depending on what Congress decides and approves with the president.
That is why every year people look to have the best advice they can get to help them complete their taxes. One of the more contentious taxes that has gotten taxpayers in an uproar over the last few decades has been Capital Gains Taxes. This has been a tax that has had levels that fluctuate often depending on who is running the government.
Most people understand that if they are in a certain tax bracket for income, they will be subjected to a percentage of their income going to pay taxes. However, for some people, there are taxes that can seem confusing. One of the most misunderstood taxes is the Capital Gains Tax.
Understanding Capital Gains Assets and Taxes
A Capital Gains Tax is a tax that is levied on profit made by investments into any type of capital asset. Capital assets are defined as:
Bonds
Machinery
Trademarks
Jewelry
Automobiles and other Vehicles
When a person owns one of these assets and sells it at a profit, it is considered a capital gain and is subject to capital gains taxes. By contrast, if a person has one of these assets and sells it for a loss over their investment in the item, it is considered a capital loss.
Filing Taxes with Capital Gains Income or Loss
Capital Gains Taxes are based on filing for either a profit or loss on any of the specific capital assets. When it comes to certain capital assets, such as stocks, they do not need to be sold to realize a profit because they can pay out dividends. Therefore, the dividends can be taxed.
In general, a Capital Gains tax rate can be lower than a standard income tax. Because of this, many people prefer to list an item sold as a capital gain income versus standard income.
For people who own investment property, earning an income on the property is not considered a capital gain. Instead, it is considered investment income. Because there are so many different tax rates on so many different types of financial income and assets, deciphering it can seem complex.
There are certain ways people can build tax shelters on capital investments. One of these is through a retirement plan that has stocks as an asset. While the stock is considered a capital gain, any profits from it are kept in the retirement plan and are not subject to capital gains taxes.
Using A Tax Professional for Filing a Return with Capital Gains or Losses
However, because taxes on capital gains can be a bit more complex, there are many aspects that can be variables. This is especially true when added to a standard income tax-based return. Because of this, many people look to have their taxes filed with a professional when they have a capital gain to file on their return.
Tax professionals understand the basic and more nuanced tax laws. Since tax laws can change on any given year, new changes that come through and are approved by Congress are usually kept up with by a tax professional. This way they can properly help their clients during tax filing season.
When looking for a tax professional that understands Capital Gain Taxes, it is important to verify their knowledge of current taxes and tax shelter laws. Doing this is vital to ensuring that they can help get the very best tax rate and the lowest tax liability rate available.
As an example of some changes that can be very applicable to some, a person’s primary home is considered a capital asset. However, as of 2016, the IRS allows for a $500,000 tax exclusion on primary residences for a couple who has a home and sells it and makes a profit. This applies only when they file jointly. Individuals who sell their primary residence get a $250,000 tax exclusion. Because a professional understands these laws and the constant changes, they can help people properly file and handle capital gains sales.