Gain is the common growth in asset or property value. It occurs if the current price exceeds the acquisition price. On the contrary, loss arises when property or assets diminish in value in comparison with their purchase price.
Classification of Gains
The term gain can be categorized in different ways.
A net gain - the profit that remains after all the expenses for buying or selling something and other costs have been paid.
A realized gain - the benefit from the assets offered for sale.
An unrealized gain - the potential benefit that the buyer could get on revaluation of financial assets.
There are also taxable or non-taxable profits. This classification is very significant, as it influences the amount of investor’s revenue.
An investor could buy a stock valued at $10 and the price of it on the market now is $14. It means that he gained $4. However, it counts only after the disposal of the asset and realization of profits.
Taxation of Capital Gains
In most cases capital gains tax must be imposed on realized gains. The tax payment is to be made not only for profits in traditional assets but also for alternative ones.
Value of tax corresponds to a class of asset, a holding period of it and an individual income tax. The tax on a short-term gain is usually equal to the tax on ordinary income, whereas the tax on long-term profits is more attractive.
A capital gain tends to be counterbalanced by a capital loss.
If the profit is kept in a tax-free account, the tax is not levied on it.
During the imposition of tax, attention is paid to net realized gains. In this process gross gains aren’t taken into account. During trading the taxable gain is the financial benefit between the acquisition and purchase price, after taking into consideration brokerage fees.
Many successful financial experts ascribe them to one of the fundamental aspects of becoming prosperous. It consists in the fact that profits are put together to existing profits.
For instance, if a person buys shares and pays $5,000 and the value of shares rises by 10% in a year, the gain is $500. In the coming year he makes a profit of $550 ($5,500x10%). That’s how he is able to build fortune over time.