What Are Capital Gains?

If you need knowledgeable attorneys to address any legal issues for your property, business, family, or estate, you can get help from the South Carolina law firm Mack & Mack Attorneys. Our clients request that our dedicated attorneys handle their business law, real estate law, estate planning/probate issues, and traffic tickets. You may wonder, “What are capital gains,” or you may have other questions your attorney can discuss.

Defining Capital Gains

Capital gains refer to all profits (or increases in value) gained following the sale of a capital asset. Almost everything you own and use for either investment or personal purposes is considered a capital asset. A capital asset could be:

• Your house
• Household furnishings
• Vehicles
• Other items, like stocks or bonds maintained as investments

The value of capital gains is determined when each asset is sold. Capital gains can also arise from the sale of investments such as funds and stocks, which are often subject to high volatility in their value.

Two Types of Capital Gains

Capital gains fall into two categories:

• Short-term — capital gains for assets sold after holding for 365 days or less
• Long-term — capital gains for assets sold after holding for over 365 days

Capital gain profits concern any kind of asset, and both short-term and long-term capital gain profits are required to be reported on your IRS tax returns for income. Grasping the difference between the two types of capital gains and adapting an investment strategy is vital for day traders or anyone else who trades securities online.

State Tax Requirements for South Carolina Capital Gains

Generally, you might be required to pay state taxes for the value of your capital gains (plus federal taxes, with some exceptions). Most states tax investment income at the same rates as earned income. On the other hand, some states tax capital gains differently, and eight states do not have any income tax (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming).

South Carolina taxes long-term capital gains at a tax rate that’s less than the rate of ordinary income. You’ll pay capital gain taxes when you make a profit from selling your assets, but you can decrease the impact of any capital gains taxes while also continuing to increase your financial position if you follow some helpful tax strategies.

A Potential Tax Strategy for Capital Gains

It can be advantageous to make use of various types of tax-beneficial retirement plans. For example, keeping an asset for more than a year might reduce your tax penalties and provide potential long-term capital gains protections. You may also choose to delay paying capital gains taxes to maximize the growth of your portfolio.

You may already know that tax-beneficial accounts, like a 401(k) or a traditional IRA, let your investments grow and become tax-deferred without incurring supplemental capital gains taxes. This remains true so long as you don’t withdraw from the asset before your retirement age.

Also, other accounts, such as a Roth IRA or a 529 educational/college savings account, are options for building wealth for your family without incurring supplemental capital gains taxes. Their tax structure is based on the idea that potential capital gains increase tax-free with these long-term investment strategies.

As a result, when you’re ready to withdraw money from these accounts, you won’t owe any federal income taxes for either the initial investment or the earnings on the account.

Of note, most tax-beneficial retirement plans don’t require paying taxes unless and until they are taken from the account. However, keep in mind all withdrawals are taxed as ordinary income independent from the original investment.

There are several advantages to using tax-beneficial accounts. However, tax laws are complicated and frequently change. If you need someone who understands your financial circumstances and can evaluate your long-term financial goals, an attorney can offer steps to maximize your financial potential. It’s vital to speak with an experienced attorney who can answer all of your questions.

FAQs

Q: How Do I Avoid Paying Capital Gains Tax?

A: To avoid paying capital gains tax, you might consider several tax strategies, such as investing in companies and holding stock for the long term, decreasing tax on capital gains on different investments, determining the cost basis for any stock shares you sell, waiting to qualify for long-term capital gains qualifications (if the investment price holds), and investing in a tax-deferred retirement plan. Consult a tax advisor to further discuss these methods.

Q: What Are Some Examples of Capital Assets?

A: Capital gain refers to the increased value of any asset when it’s sold. Capital assets can include stocks, bonds, real property, digital assets, jewelry, precious gems and metals, household furniture, vehicles or boats, stamp or coin collections, and timber grown at your property. An attorney can answer any other questions regarding examples of capital gain.

Q: How Much Capital Gains Are Considered Tax-Free?

A: As an individual filer in the 2024 tax year, you won’t pay any capital gains taxes if your entire taxable income is $47,025 or less. The tax rate increases to 15 percent on capital gains if your 2024 income is between $47,026 and $518,900. Above $518,900, the tax rate increases to 20 percent for capital gains. Explore your options for ‘tax-free’ capital gains with a qualified attorney.

Q: What Are the Rules of Capital Gains Tax?

A: Short and long-term capital gains are taxed differently. To calculate possible capital gains, you can:

• Determine the basis — the original price of the purchase plus potential improvements.
• Determine the realized amount — fees subtracted from the sale price.
• Determine any gains or losses — subtract the realized amount from the original amount.

A knowledgeable attorney can further discuss the rules of capital tax gains with you.

Experienced Lawyers for Your South Carolina Tax Matters

At Mack & Mack Attorneys, we can provide comprehensive legal representation for all of your business law matters. We have extensive experience and the legal knowledge to help with your needs. Consulting with our team can provide you with the guidance you seek and can allow you to make informed decisions with your tax needs. Mack & Mack Attorneys can help. Contact us to speak with an attorney right away.