Should you worry about Biden’s 40 percent capital gain tax proposal?
The market has fallen sharply on April 22nd because of a potential substantial rise in capital gains tax. As many of you, who invest in financial products as a part of your retirement savings plan or IRA, may start worrying about potential massive tax consequences and may start thinking about liquidating your positions. Think about it twice.
What is a capital gains tax? A capital gain occurs when you sell a financial asset for more than you have paid for it. Once you have realized the gain from your investments (actually sold them), it is treated as a capital gain and taxed by the government.
Currently, long-term capital gains tax rates are broken down into 3 brackets (0% for income of up to $40,400; 15% for income between $40,401 — $445,850; and 20% for income of more than $445,850). Short-term capital gains are taxed as ordinary income.
First, the proposed raise from 20% to 40% will reach only individuals with an annual income of more than $445,850. Second, you should remember that any earnings your contributions produce during the time they remain in your retirement savings plan or IRA account are tax-free. No matter how many times you sell investments that have increased in value, you won’t owe capital gains tax on any profit you make. Yes, the potential for a doubled capital gains tax for wealthy individuals is somewhat alarming but should not be a reason for panic for middle-class Americans.
The material on this page reflects PG Capital's professional opinions as of today and is subject to change. The information presented here has not taken into account any particular investor's investing goals or needs, and investors should not base their investment decisions entirely on this material. Past performance is not a guarantee of future results. All investments involve some amount of risk, and investors have different time horizons, goals, and risk tolerances, so consult with your PG Capital Financial Advisor before proceeding.