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 Tax?7 Views
Finance a la shmoop what is capital gains tax? alright people you've invested
your hard-earned savings from working 72 hours a week all year you put 10 grand
to work seven years ago in buying Heinz ketchup stock at 50 bucks a share
200 shares then this year along comes Warren Buffett and Berkshire Hathaway to [Warren and Berkshire appear]
confirm what a brilliant investor you were and they buy for all cash the
company Heinz ketchup for $200 a share you've made four times your money in
seven years nice work well you have a gain of 150 bucks a share which you are
gonna fully realize like you'll realize that capital gain in the form of
receiving cash like oh I realize I have cash in my bank account yay me!
so all this was so good such a nice day until you realize that you live in a [Woman frollocking in a meadow]
blue state with massive taxes and that you'll now give back about a third or
more of your investment gains that is you invested 10 grand it became 40 grand
the old-fashioned way you had 30 grand of profits and now uncle sam says i want [Uncle Sam demanding I want your cash]
your cash and you now pay about 10 grand roughly a third of it in taxes of
your gains of that 30 grand back to Uncle S, sadly you are paying back in
taxes about the same amount you invested in the first place yep lots of hard work
lots of taxes how's that feel?
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