Now let?s talk about capital gains. These are gains you earn from the sale of property that you?ve held for longer than 12 months. The key point here is that you don?t pay tax until you actually sell the property.
It makes sense that rates are lower for capital gains. That?s because inflation pushes up the value of your assets, even if they don?t grow in ?real? terms. We?ve all heard stories about friends or relatives who bought stock in a company for a few thousand dollars years ago, then cashed out for a few hundred thousand. Well, how much of that gain is due to inflation, and how much of that is real appreciation?
The Bush administration capped tax on most capital gains at just 15%. For 2008 and 2009 only, some gains are taxed at zero percent.
Obama proposes to let that 15% cap expire after 2010 for individuals making over $200,000 and families making over $250,000. That would raise the rate to 20%.
While those rates may go up, there are still lots of opportunities to use capital gains to cut your taxes. If you own your own business, you have two ways to profit. You can take income out of the business and pay tax on it today. Or you can grow the value of the business and defer tax until you sell it, or even avoid income tax entirely if you pass it on to your heirs. Lots of sharp business owners plan to sidestep the coming Obama tax hikes by shifting their efforts from growing current income to growing the value of the business.
