Capital Gains

Zero To 60: What Business Owners Need To Know About Capital Gains,” describes useful ideas that will help you learn more about capital gains and how this tax regime can impact business decisions. After reading this article, determine which of the planning opportunities could be beneficial in a corporate and independent business setting. In detail, convey why or why not? Using the text for this class, describe the pros and cons in business law regarding capital gains. Respond to at least two of your classmates’ posts.

Guided Response:

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Respond to at least two of your fellow students’ posts in a substantive manner. Some ways to do this include addressing students who may choose different examples of pros and cons, providing your response is substantive.
Review the posts made by your peers.

 

here are 2 students post to respond to:

Mark as Read Capital Gains Justin Lambert Email this Author 10/7/2015 1:24:55 PM
 

After reading this article, many of the planning opportunities could be beneficial in a corporate and independent business setting. One of the most important statements in the referenced website is, “Capital gains are not something you factor in after deciding your business strategy … they are something that should be part of your business strategy from the very beginning” (www.forbes.com). This tax regime can greatly impact business decisions if your business is not planned around potential capital gains and losses.

My place of employment is a nationally recognized gym chain. Instead of purchasing equipment at full price and taking a hit of depreciation, we have decided to lease equipment for certain time periods and that also allows us to exchange our equipment in when a new product comes out. This is very beneficial because we do not have to worry about capital losses when depreciation hits hundreds of gyms around the clock. Selling a business for its assets could be beneficial in this setting due to the type of equipment turnover there is.

One of the major pro’s is if you declare a taxable capital loss, you can carry it back for three years or carry it forward indefinitely until you declare a capital gain. Another pro is that you are not taxed on capital gains until disposition. Con’s are also prevalent when discussing capital gains and losses. One of the major cons is when having a capital gain all of the profits are taxed in the current year. Also, some business plans have the unfortunate ability of being taxed multiple times with short and long-term tax hits.

References:

Retrieved from: http://www.forbes.com/sites/steveparrish/2014/03/24/zero-to-60-what-business-owners-need-to-know-about-capital-gains/

Seaquist, G. (2012). Business law for managers San Diego, CA: Bridgepoint Education, Inc.

 
Capital Gains Nicole Thompson Email this Author 10/6/2015 12:11:51 PM
 

The Business owner’s personal tax is determined on the corporation type. Per the Article, “Whether long-term or short-term, a capital gain is factored into the dreaded 3.8% Medicare Surtax. The question is whether it is on top of a 20% long-term capital gain rate or a 39.6% rate for short-term capital gains. Further, timing is crucial because the 3.8% tax only applies when the taxpayer has exceeded a threshold for modified adjusted gross income ($250,000 for married taxpayers). The nature and timing of a business sale can greatly affect the business owner’s overall rate of personal taxes.” (Parrish, 2014)

The primary factor being time due to the income, which may or may not have been generated can determine how much tax will be taken on based on how much money was actually made- to be taxed. Though the long-term tax amount is shorter it is still much less than the short-term capital gain costs. If the $250,000 (if married) threshold is not met before the timing deadline, then it is considered long-term, which will only make the total tax to be paid 23.8%, while short term overall taxation will be 43.4% which is practically double in taxes based on timing alone. This pro and con seems like it would simply be a smarter move to have a business whether large or small grow slowly so that the timing is in place to not be taxed at such a high rate, and then allow the business to grow more fast to allow time to actually earn capital which will not be taxed as high in the end anyhow, but you will incur a tax.  The pro-portion of this is, “Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.” (IRS.gov, 2011)

REFERENCES:

Ten Important Facts About Capital Gains and Losses. (2011, February 18). Retrieved      October 6, 2015, from gov/uac/Ten-Important-Facts-About”>http://www.irs.gov/uac/Ten-Important-Facts-About    Capital-Gains-and-Losses

Parrish, S. (2014, March 24). Zero To 60: What Business Owners Need To Know About Capital Gains. Retrieved October 6, 2015.

 

 

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