So now that you understand what capital gains are, you’re really trying to understand what is the difference between one type and this type, which is short-term capital gains. And in this blog, I’m going to explain it to you.

Hi there, I’m Billy keels. I’m back once again to share some tips and strategies with you that are going to help you to go out and make more money. They’re going to help you to have more control over your free time. And ultimately they’re going to help you to live with less stress.

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So I’m decided we’ll do a couple of blogs because I’ve been having lots of conversations with people lately around retirement. A lot of people are concerned and anxious because of things that are happening in the stock market. We’ve talked about a number of concepts and you’ve already read the previous blogs. And if you haven’t, I would recommend that you go back and read it. It’s just to really understand what is the concept of capital gains and how can it affect us, right? So we’re going to already assume that you know what they are, so I’m going to build on that. Like I said, if you haven’t read it, go back and check out the blog. We’re going to look at short-term capital gains. 

You can imagine that you buy an asset and that asset when you buy it, you actually buy it for a million dollars and over time and then a short term capital gain, let’s say, it’s going to be less than one year, less than 365 days and you’re going to sell that asset. Once you sell that asset, you’re going to sell it for $1.5 million. So the difference is $500,000, which is the capital gain, which is from the time you bought it, it increased in value from 1 million to 1.5 million. So that 500,000 is the capital gain and because it was done less than 600, 365 days, there is a short-term capital gains tax that is applied to that. Now we’re going to use the IRS code and we’re going to use today’s values. But the fact of the matter is, and maybe we can get a graph that shows, or we can show something here that says what the tax brackets are for the United States at this point in time, but just know that in today’s rates that anything over 500,000 roughly we’re going to use for this example is taxed at 37% at the federal rate and because US tax is progressive it’s not actually 37%. It will be a little bit more, but just let’s use the example just to keep things simple. 

So when you make that 500,000, which is the difference between what you bought it for and what you sold it for that asset, you are going to be taxed at 37% on that $500,000. So actually the short term capital gains tax that is levied against that is 37%. So you actually keep 315,000 of the 500,000 that you grossed. And so that is the effect of the short terms capital gains tax, because they are applied at what are known as ordinary income tax rates. 

So hopefully that makes it really, really clear, wanted to just give a simple example because when you see how that is juxtaposed or compared to long-term capital gains, if you keep things over a year and hopefully the example would be much clearer for you.

So I always want to tell you just as a reminder, if you’re someone who’s in a really busy job like me during the day W2 type job, and you also have dreams of creating your own new alternatives in life and having more financial freedom, well, I have no what it’s all about, and I’ve written an e-book just for you. If you want to know more about that, just go to keep on cashflow.com forward slash roadmap, send out a free ebook to you. And if you want to do some other things, you can do that there give you options. But that way, at least we’re in touch with one another and you can, you can learn the things that I’ve already done, avoid a lot of the mistakes that I’ve done and do the things right that, so far I’ve been doing right.

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And also if you want to check us out twice a week at the Going Long Podcasts with Billy keels, we’re on all of your favorite platforms as well as YouTube. And so I’m sure we’ll be on even more places by the time you see this. So don’t forget to check out the going along podcast with Billy keels. And until then, I want you to go out and make it a great day and look forward to seeing you.

You can also check out my latest podcasts and collaborations here keeponcashflow.com/podcasts/