There are two ways that the IRS categorizes your taxes, ordinary and capital gains. These two types of taxes are incredibly different from one another and it is important that you understand what each of them are. Getting a good understanding of these two types of taxes can help you prepare appropriately for tax season. Mark Dicus & Company is here to explain what ordinary taxes are as well as capital gains as we approach tax season once again.
Ordinary Income Tax
You need to understand what falls under the ordinary category for taxes. Any income that came as a result of salary or hourly wages would be considered ordinary. Also, income that you have gotten as a small business owner or interest income as well. If you have a rental property that gives you income each month, it is also considered to be ordinary taxable income.
What Qualifies as Capital Gains Tax?
The clearest difference between ordinary and capital gains taxes comes this way; when you sell your personal property, you may be expected to pay capital gains taxes. This only comes into play when you sell the property or belongings for more than you purchased them for. This could be a result of selling stock sales, real estate, and mutual fund sales. There are, however, two kinds of capital transactions.
– Short Term: These capital transactions are treated just the same as ordinary taxes.
– Long Term: If you owned the asset for more than one year, it is considered a long term capital transaction. It will be taxes using the capital gains rate.
Will I Owe Capital Gains Tax?
To decipher whether or not you will be responsible for paying capital gains taxes or have experienced a loss, you can take the amount of money you got for the sale and subtract that from what you paid. If you made more than you spent, you will be responsible for paying capital gains. Depending on your income, you could be paying 0%, 15% or 20%. This is the same with a short term capital transaction. If you sold it for more than you paid, you will be taxes as ordinary income and that will be calculated using a marginal rate. If you came up with a loss, you can deduct up to $3,000 from your income. If they exceed that number, you can roll them over to the next tax year.
Tax Preparation, Filing, Planning & More in Salt Lake City, St. George, West Valley City, Provo, Orem, West Jordan & Greater Cedar City, Utah
If you have sold some personal property and aren’t sure what you owe, you can turn to Mark Dicus & Company to help you figure it all out. We have the experience and expertise needed to ensure your taxes are done right. Anytime you sell personal property for a large gain, you are more than likely going to have questions about what that means for your taxes. We can help you figure all that out. Call us today!