Capital Assets?
Real estate, stocks, and rare collectibles like artwork or vintage baseball cards are all capital assets. Basically, non-inventory assets qualify as capital assets, and therefore when sold for a gain have a capital gains tax applied to it.
Hold on to your Asset
The amount of time you hold on to your capital asset prior to selling it will determine what capital gains tax rate will be applied. Assets sold for a gain but were held less than a year, otherwise known as short-term assets, are taxed at the ordinary income level of the taxpayer. This can mean for taxpayers in higher brackets as much as 37% of that gain being taxed! Holding onto an asset for more than a year qualifies it for a lower rate when sold and therefore some savings. For example:
Bob purchased 200 shares of ZZZ Company at $20 each. He intends to sell them at $30 each. Assume he is in the income tax bracket of 24%
| Short-Term | Long-Term |
| Bob sold his shares a month later and had a capital gain of $2,000 ($30 x 200 shares – $20 x 200 shares). | Bob sold his shares a year later and had a capital gain of $2,000 ($30 x 200 shares – $20 x 200 shares). |
| Bob’s capital gain is taxed at his ordinary income tax rate of 24% | Bob’s capital gain is taxed at the long-term cap gains rate of 15% |
| $2,000 x 24%= Cap gains tax of $480.00 | $2,000 x 15%= Cap gains tax of $300.00 |
That’s almost a 10% drop in the tax rate if it’s a long-term asset! It literally pays to be patient in this case. The current cap gains tax rates are 0%, 15%, and 25% depending on your total taxable income.
Owners of emerging business should keep the capital gains tax in mind. Holding onto assets for more than a year before selling may potentially save you in taxes. Emerging businesses benefit from accounting teams cognizant of bookkeeping but the tax rules as well, like us here at MiklosCPA. MiklosCPA has helped many businesses in assorted industries with their tax and accounting needs through the latest in “virtual office” services. Let us show you how we can benefit your business! Give us a call to learn more how we can help you. Make a new social media friend and follow our media pages too. We regularly post interesting tax tidbits and other “good-to-know” news for our readers.