Capital Gains Tax vs. Income Tax
When you sell shares immediately after buying to make a profit, you’ll face income tax. If you hold shares over a year, you can avoid income tax and instead pay long-term capital gains tax. Capital gains max out at 20% but most individuals pay 15%, while income tax is much higher.
Understanding Profit After Tax
Net profit is earnings after operating, interest, and tax expenses. Gross profit is revenue minus the cost of goods sold. By subtracting remaining expenses, you get net income. Profit after tax is earnings after taxes are deducted. It is considered the best measure of the ability to generate returns as it includes operating income and other sources. Investors watch profit after tax margin to see if income generation changes.
Tax Implications on Gains
The amount stock increases when held is capital gains. When selling an asset at a profit, those gains are realized and subject to capital gains tax based on the holding period. Gains are short-term if owned under a year and taxed as income up to 39.6%. Gains over a year are long-term, capped at 20% but 15% for most. This differs from income tax that is much higher.