Capital is a unique term when it comes to taxes. If it gains
value, you pay a tax. If it loses it, you can write at least
some of the loss off.
Capital Assets - Gains and Losses for Taxes
Practically everything you own is a capital asset. This is true
whether you use it for business purposes or personal use. The
internet revenue service is very interested in your capital
assets. Why? The IRS likes to tax the full gains while only
giving you a small break on any lost value. Specifically, you
have to report and pay taxes on gains in value of your capital
assets when you sell them. Unfortunately, you only get to claim
a loss on capital assets if it is an investment property such as
stocks. Doesn't seem fair, but that is how the cookie crumbles
these days!
Here are some tax issue highlights on capital assets:
1. Generally, you report gains and losses on capital assets by
subtracting the price you purchased it for from the price you
sold it for. This calculation is reported to the IRS on Schedule
D, which should be attached to your 1040 tax return. Lucky you!
2. Capital gains and losses are classified as long-term or
short-term. The classification breaks down on...tad a, how long
you've owned the capital asset in question before selling it to
someone else. If it has been less than a year, it is a
short-term gain or loss. Hold on to it for more than a year and
you are looking at a long-term gain or loss when reporting
taxes. Each classification requires different tax calculations
and you will ultimately pay different amounts of tax.
3. In a bit of good news, you are generally going to pay less
tax on a capital asset gain. For the 2005 tax year, the tax
rates range from a miserly five percent to a more painfull 28
percent.
4. While the IRS is happy to tax all of your capital gains, it
has different views towards losses. You can deduct losses, but
only up to $3,000 each year.
We all have capital assets, even if we don't realize it.
Unfortunately, the IRS is aware of this, so make sure to report
your gains and losses.
About the author:
Richard A. Chapo is with
http://www.businesstaxrecovery.com -
recovery of business taxes through tax help and tax relief.
Visit
http://www.businesstaxrecovery.com/articles to read more
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