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Knowing more about capital gains tax rates is not as complicated as you may think. In reality, the guidelines are really quite easy. Capital gains tax rates are paid by people (individuals and trustees), who have made a profit on their investments for the year. Companies, in this case, pay a "corporate tax" instead of the capital gains tax. Anybody who has a capital gain should report it on their tax return. Any amount owed the Internal Revenue Service will be payable by April 15 of the subsequent year. In the United States, people pay tax on the total net gain of their capital investments and capital gains are usually taxed at a more favorable rate than regular income. This is intended to provide incentive for investors to make capital investments and to help finance economic activity. The taxed rate in turn depends on the investor's tax bracket. Short-term capital gains are taxed at the investor's normal income tax rate, and are described as investments held for a year or less. Long-term capital gains include investments held over one year and are taxed at a lesser rate than the short-term gains. In 2003, the capital gains tax rate was decreased to 15 percent and then to 5 percent for people in the lowest two income brackets. These 5 percent tax rates will be in effect through 2011; if the tax cut is not extended at that time, the rate will return to rate of 2003, which was 20 percent. The 15 percent tax rate on capital gains, formerly scheduled to terminate in 2008, was extended through 2010 as a result of the Tax Reconciliation Act, which passed in 2006. This Tax Act carries the following additional implications: In 2008, 2009, and 2010, the tax rate on entitled dividends and continuous capital gains will be zero percent for people in the 10 percent and 15 percent income tax brackets. After 2010, dividends will be taxed at the taxpayer's normal income tax rate, regardless of tax bracket. After 2010, the continuous capital gains tax rate will go to 20 percent (currently at 10 percent for taxpayers in the 15 percent tax bracket). After 2010, the 18 percent capital gains tax rate on investments held at least five years (8 percent for taxpayers within the 15 percent tax bracket) will be reinstated.
So these favorable capital gains tax rates will remain in effect for a while yet, which is good news for investors!
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