Categories General

Understanding Capital Gains Tax for Small Business Owners

As a small scale business owner, it is imperative for you to have a deeper understanding on how your incomes are being subject to federal tax. In doing so, you will be able to allocate your funds correctly, plan your financials, upraise your investments and design strategies on how to make your income grow from your assets.

  • What you need to know first?

First, you need to understand the basic mechanics and processes of capital gains tax and how it affects your business in general. You also need to learn how much time you have to make your income generate sales for it to compensate the tax being put on top of it. The following article aims to summarize the important key points you need to understand about capital gains tax.

  • The basic facts you need to know about capital gain

Capital gain is defined as the income generated from the trades of a capital asset or investment. Simplifying through example, say you have sold one of your investments, like a piece of lot. However, real estate and development is not you main business, say buy and sell of small merchandise materials. The income you generate from the sale of the land is the investment or capital gain. That particular income will be subjected to tax by the federal government, known as the capital gain tax.

  • Maximizing the benefits of capital gain tax

As a small scale business owner, you must understand and learn how to use capital gain tax on your own advantage – in a legal manner, of course. You should know that assets or investments have lower capital gain tax when they are held in long term holding period. Say if your piece of land is sold after a couple of years, you can generate a higher sales value from it but lower capital gain tax. This is because capital gain has lower tax than an ordinary income tax, like salaries. If you are able to upraise the value of that piece of land, you got to pay a small capital gain tax, plus it has been held dormant for a longer time.

  • Your business structure and your capital gain tax

Tax put on capital gains depend on the nature and structure of a business. The sales income generated from capital gain is passed to individual’s tax return. This means that capital gains tax is subjected to individual’s tax rate.  On the other hand, for incorporations and corporate ownership, the capital income tax is subjected to the corporate tax return and not to each member of the board.

  • Talk to the Experts.

There are accountants and professional who specialize in taxation. You can seek their services and consult about your questions on capital gains. In doing so, you will be able to make your investments grow without worrying about the taxes. It will also be easy for you to organize your financial books and make further plans in the future.