Captial gains tax explained

Capital Gains tax is a federal tax penalty that is imposed on capital accumulation, investment and productivity. Some of the income that is subject to capital gains tax includes the sale of an investment, a home, a family business, a farm or ranch or even a work of art. The capital gains tax is applied on the difference between the price paid for an item and the money received from selling it, or the capital gain. The most common form of capital gain for people is the sale of their corporate stock. The capital gains tax rate for individuals is currently at one of its highest rates ever and is at 28% while the corporate rate is at its greatest level in history, namely 35%. There is an inequality with capital gains tax in the fact that people must pay taxes on all of their gains but are only able to deduct a portion of their losses. This particularly applies to investments that fluctuate between gains and losses over time. In many states taxpayers are liable, not only for the federal capital gains tax but also the state’s own form of capital gains tax. This can actually take the combined rate to almost 40%. California, Montana and Rhode Island are amongst the highest in the country. For the government, the capital gains tax payment represent 6% of personal and corporate income tax receipts and 3% of total federal revenues. There is a lot of controversy surrounding the capital gains tax that individuals and corporations have to pay but it actually brings in much less revenue for the federal government than most people would think. In fact, the total collections during the 1990s were between $25 billion and $30 billion a year. In the USA, capital gains are not indexed for inflation which means that the seller pays capital gains tax on the real gain and also on the gain attributable to inflation. This is one reason that the capital gains tax is lower than regular income tax rates. In other countries, such as the United Kingdom, the capital gains tax rate is much higher (over 40%) but there it is actually indexed to inflation. The difference between capital gains tax and all other forms of federal tax is that it is basically a voluntary tax. People can avoid paying any of the tax by simply not selling their assets. This is becoming increasingly common, especially with the uncertainty of the stock market, and the government estimates that there is $7.5 trillion of unrealized capital gains which would all be subject to capital gains tax if it was sold.

Employer cash incentives to employees for hybrids

Many companies offer their employees cash incentives to undertake certain actions such as buying a hybrid car. It is important to remember that such situations have tax consequences Employer Cash Incentives To Employees For Hybrids Purchasing a hybrid vehicle makes sense on many fronts. It is a financial windfall given tax credits provided under the Energy Policy Act of 2005. Driving a hybrid has the additional financial advantage that one uses less gas, thus saving on fuel prices. Finally, hybrids are much easier on the environment given the fact they produce less pollution than traditional fossil fuel vehicles. As is often the case, businesses tend to take action to promote socially positive steps before the federal government. Whether it is promoting healthier lifestyles or, in this case, a more green lifestyle, businesses almost always lead the way. The situation with hybrid cars is no different. Many businesses are providing financial incentives to employees that purchase hybrid vehicles. These incentives can be significant. They often are offered in the form of cash payments, contributions to retirement plans and even stock options. As you might image, employees are taking advantage of the situation. There is, however, one cautionary not for both businesses and employees when it comes to incentives for hybrids. The act of transferring wealth to the employees is considered a taxable event. Simply put, the employees must claim the amount of the incentive as income when reporting taxes. The employer is responsible for reporting said income as part of the reported W-2 wages and the employee must pay the relevant taxes. There is one exception to this taxable income rule. If the employer is actually producing the product in question, then no taxable event occurs. In the case of the hybrid incentives, this exception would obviously only apply to employees of vehicle manufactures actually building the hybrids, to wit, Honda, Toyota, Ford, GM and so on. The decision by many companies to offer incentives to motivate employees to purchase hybrids is laudable. It is important, however, that both employers and employees understand the tax consequences.