What You Need to Know About Capital Gains and Losses?

WHEN YOU SELL AN INVESTMENT, the difference between the price you receive from the sale and your basis (generally what you paid for it) is either a capital gain or a capital loss. If you sell at a profit, you have a capital gain. If you sell an investment for less than you paid for it, you have a capital loss.
Up until the time you sell investments, changes in their market values are unrealized capital gains or losses and have no effect on your taxes. But when you sell a stock, bond, mutual fund, or other security, a capital gain or Joss is realized and may affect your taxes.

Capital gains realized in a taxable account are taxable and must be reported on your tax return. Capital losses realized in a taxable account can be used to reduce the amount of capital gains you must pay tax on.
The rate of tax that you pay on a capital gain depends on your tax bracket and how long you owned the security. If you owned it for one year or less, the gain is short-term and is taxed as ordinary income. If you owned it for more than one year, the gain is long-term and qualifies for a lower tax rate than ordinary income.
If you hold mutual funds in a taxable account, you will likely have to contend with capital gains even before you sell your shares. That is because mutual funds distribute to their investors the capital gains that the fund realizes from selling securities in its portfolio.

One advantage of using an IRA or other retirement account is that capital gains and other investment earnings are not taxed while in the account-and may escape taxation altogether with a Roth account.
With a Roth account, your withdrawals (including capital gains) are tax-free in retirement, as long as the rules for Roth accounts are followed.
With a traditional tax-deferred account, withdrawals are taxed as ordinary income, so your capital gains will eventually be taxed as ordinary income when they are withdrawn from the account.

You may also have a capital gain if you sell other capital assets, such as your home, jewelry, or collectibles, for more than you paid for them.

PLEASE NOTE: All investing involves risk, including the possible loss of principal.

With offices in Rutland and Williston Vermont, Copper Leaf's team of CPAs and experienced financial planners have worked with clients for more than 15 years to help them achieve their short and long-term financial objectives – mindful of the need to adjust strategies as life circumstances evolve. For more information, call 802.878.2731.