This is how Uncle Sam gonna tax that asset. One of the two flavors anyway. In this case, that asset is an equity and any profit made from selling it (i.e. "capital gain") will be taxed based on how long the investor held the stock. Less than a one-year holding period results in "short-term capital gains" and profits will be treated to a higher tax rate (up to 35% federal, plus more on the state level...based on the investor's tax bracket).
Selling a stock that was held for more than one year after the purchase date will result in a "long-term capital gains" tax (maximum of 20%, depending on tax bracket, plus more from the individual state). So while "buy and hold" is a sound investment strategy, "buy and hold for at least one year" is a better one, at least for tax purposes.
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Finance: What is Capital Gains Distribut...21 Views
Finance a la shmoop what are capital gains distributions? cap gains app
hap-happy day.. your mutual fund invested a hundred grand in whatever.com it then [Mutual fund appears]
was bought by Google for three hundred grand
three years after you invested at least that was your portion that three hundred
grand well you had a gain of two hundred grand
on your investment and because Google paid cash not stock in acquiring
whatever.com on your books the gain was realized ie turned into cash so then the
mutual fund has to distribute to you that capital gains ie the cash it [Capital gains definition appears]
realized in selling the company to the kindly loving people at Google whose
motto is do only a little bit of evil right so one more time for the people in
the back how does this capital gains distribution thing work well the fund
manager looking out for your mutual fund may sell or buy some of the stocks or [Fund manager appears with stocks and bonds]
bonds in your fund if she sells and makes a profit well then that profit or
the proportionate gains part of it has to be distributed to the fund holder and
that's you and then of course you got to pay taxes
on that distribution if your fund is held in a normal account like it's in a
401k or an IRA you'll pay taxes on it later but not right away and if you own
it personally well you'll pay at that year yeah Uncle Sam always needs to get [Uncle Sam appears]
his cut when there's capital gains distribution if he doesn't he gets angry
and you know you wouldn't like Uncle Sam when he's angry [Uncle Sam turns into Hulk]
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What is Capital Gains Tax? Capital gain taxes are taxes collected by the IRS on trading profits from investments in equities, real estate, or any o...