What is capital gains tax and how does it work?

What is capital gains tax and how does it work?

Capital gains tax is a tax on the profit from the sale of an asset. It applies to stocks, real estate, and other investments.

Are there different rates for short-term and long-term capital gains?

Yes, short-term capital gains are taxed as ordinary income, while long-term gains are usually taxed at a lower rate.

How can I minimize my capital gains tax?

You can minimize capital gains tax by holding investments for over a year, using tax-loss harvesting, or investing in tax-advantaged accounts.

What are the exemptions for capital gains tax?

Exemptions can include the primary residence exclusion, where you may not pay tax on gains from selling your home under certain conditions.

What happens if I don't report my capital gains?

Failing to report capital gains can lead to penalties, interest on unpaid taxes, and potential audits from the IRS.