4 ms·

please help me understand what you call "capital gains". in india, when you are holding a share in a company for example, its value goes from $1 to $4 in a yea

please help me understand what you call "capital gains". in india, when you are holding a share in a company for example, its value goes from $1 to $4 in a year. for that financial year, your accountant says "hey. you earned $3 as capital gains", and its appropriately taxed as short term capital gains or long term. how do American financial statements show "wealth"? i read the article but i don't understand. if my personal balance sheet was $ 1 at the start of the year and by the closing, i say my capital balance is now $2, that means i got the balance through some earning so that is what is taxed. why the half assed approach to delay till final sale? accrual is an accounting word. isn't it?

faet 5y ago
If I buy a share of a company for $1 January 1 2019 and it is worth $2 January 1 2020 I've got $1 of 'unrealized gains'. I pay zero taxes. If I sold it before 1 year of holding, I'd pay $1 in taxes (the gain) at my top tax rate based on my other income. If I sell it after 1 year I pay tax at a reduced rate on the total gain.
- 2Gkashmiri 5y ago
  i am not concerned about selling. i am saying when you "accrued" an income, you pay taxes on it.
  - kristjansson 5y ago
    It’s not an income until you sell it
koheripbal 5y ago
In the US (and most western countries), the difference is not reported as income until you actually sell it. This removes any debate about the value of the asset.
- 2Gkashmiri 5y ago
  my question stands. why doesnt us tax system recognise accural of income?
  - deleted 5y ago
    [deleted]
  - bsaul 5y ago
    Because,there’s no income until you actually sell. Imagine someone poor, having bought a small house in a sketchy neighborhood for not much. Imagine this neighborhood now becoming really fancy with hipsters moving in. With your system, the person would have to basically sell his house just to pay taxes on gains that didn’t translate into anything in his real life.
    - newhouseb 5y ago
      In many places in the US (California aside), property taxes are pegged against the assessed value of the home and re-assessed on a regular cadence. So the scenario you paint can definitely happen. The way that property taxes work in California is more similar to Capital Gains in the US where your taxes are based on the sale price (although imposed continually, not just when a transaction occurs). The net effect of this is that you have neighbors with effectively identical homes who pay a full order of magnitude difference in property taxes every year (i.e. 2k vs 20k). [1] [1] https://www.officialdata.org/ca-property-tax/ https://www.officialdata.org/ca-property-tax/
    - 2Gkashmiri 5y ago
      what is wrong with you. when did i talk about a "poor" person. i specifically wrote when you record an amount in your financial statements as your "gain", after close of financial year, there is no uncertanity of what was earned. the actual has happened. why would a regular home owner create his financial statement?
      - zentiggr 5y ago
bkirkby 5y ago
"why ... delay till final sale?" Delaying until final sale encourages people to keep money in the market. Money in the market is, ostensibly, providing a value to society as good; probably better, than anything government has ever done. The distinction is "wealth as personal consumption" versus "wealth as resource allocation." The former is something that only benefits the wealthy person. The latter is something that already benefits society.
- molszanski 5y ago
  > "wealth as personal consumption" versus "wealth as resource allocation." Wanted to post exactly the same comment. We are yet to develop an appropriate terms, that are _widely_ understood that describe the problem in details. Personally, I don't see the problem with "rich getting richer". I see the problem with poor getting poorer. It seems it is waaaay more complicated then the simple tax the rich
- triceratops 5y ago
  > The former is something that only benefits the wealthy person. The latter is something that already benefits society. Even a rich person's consumption "benefits society"* by stimulating the economy. Their spending is someone else's salary or profit margin. *Leaving aside that most consumption is a negative for the environment.
RHSeeger 5y ago
> how do American financial statements show "wealth" That's the point though. This is a tax on income, not wealth. And, until you sell the asset, it's not income.
nybble41 5y ago
> in india, when you are holding a share in a company for example, its value goes from $1 to $4 in a year. for that financial year, your accountant says "hey. you earned $3 as capital gains", and its appropriately taxed as short term capital gains or long term. Capital gains taxes in India appear to work the same way as capital gains taxes in the United States[0]: > Simply put, any profit or gain that arises from the sale of a ‘capital asset’ is a capital gain. The tax is only incurred at the time of sale. If you don't sell anything then your accountant will report $0 in capital gains, even if the value of your assets (on paper) has increased. If you are invested in a mutual fund then (at least by US rules) you may have reportable short-term or long-term gains despite not actually selling any shares due to trading activity in the fund; the taxes are passed through to the fund's investors. However, this is unrelated to any change in the value of the fund's shares. [0] https://cleartax.in/s/capital-gains-income https://cleartax.in/s/capital-gains-income

faet 5y ago

If I buy a share of a company for $1 January 1 2019 and it is worth $2 January 1 2020 I've got $1 of 'unrealized gains'. I pay zero taxes. If I sold it before 1 year of holding, I'd pay $1 in taxes (the gain) at my top tax rate based on my other income. If I sell it after 1 year I pay tax at a reduced rate on the total gain.

2Gkashmiri 5y ago
i am not concerned about selling. i am saying when you "accrued" an income, you pay taxes on it.
- kristjansson 5y ago
  It’s not an income until you sell it

koheripbal 5y ago

In the US (and most western countries), the difference is not reported as income until you actually sell it. This removes any debate about the value of the asset.

2Gkashmiri 5y ago
my question stands. why doesnt us tax system recognise accural of income?
- deleted 5y ago
  [deleted]
- bsaul 5y ago
  Because,there’s no income until you actually sell. Imagine someone poor, having bought a small house in a sketchy neighborhood for not much. Imagine this neighborhood now becoming really fancy with hipsters moving in. With your system, the person would have to basically sell his house just to pay taxes on gains that didn’t translate into anything in his real life.
  - newhouseb 5y ago
    In many places in the US (California aside), property taxes are pegged against the assessed value of the home and re-assessed on a regular cadence. So the scenario you paint can definitely happen. The way that property taxes work in California is more similar to Capital Gains in the US where your taxes are based on the sale price (although imposed continually, not just when a transaction occurs). The net effect of this is that you have neighbors with effectively identical homes who pay a full order of magnitude difference in property taxes every year (i.e. 2k vs 20k). [1] [1] https://www.officialdata.org/ca-property-tax/ https://www.officialdata.org/ca-property-tax/
  - 2Gkashmiri 5y ago
    what is wrong with you. when did i talk about a "poor" person. i specifically wrote when you record an amount in your financial statements as your "gain", after close of financial year, there is no uncertanity of what was earned. the actual has happened. why would a regular home owner create his financial statement?
    - zentiggr 5y ago

bkirkby 5y ago

"why ... delay till final sale?" Delaying until final sale encourages people to keep money in the market. Money in the market is, ostensibly, providing a value to society as good; probably better, than anything government has ever done. The distinction is "wealth as personal consumption" versus "wealth as resource allocation." The former is something that only benefits the wealthy person. The latter is something that already benefits society.

molszanski 5y ago
> "wealth as personal consumption" versus "wealth as resource allocation." Wanted to post exactly the same comment. We are yet to develop an appropriate terms, that are _widely_ understood that describe the problem in details. Personally, I don't see the problem with "rich getting richer". I see the problem with poor getting poorer. It seems it is waaaay more complicated then the simple tax the rich
triceratops 5y ago
> The former is something that only benefits the wealthy person. The latter is something that already benefits society. Even a rich person's consumption "benefits society"* by stimulating the economy. Their spending is someone else's salary or profit margin. *Leaving aside that most consumption is a negative for the environment.

RHSeeger 5y ago

> how do American financial statements show "wealth" That's the point though. This is a tax on income, not wealth. And, until you sell the asset, it's not income.

nybble41 5y ago

> in india, when you are holding a share in a company for example, its value goes from $1 to $4 in a year. for that financial year, your accountant says "hey. you earned $3 as capital gains", and its appropriately taxed as short term capital gains or long term. Capital gains taxes in India appear to work the same way as capital gains taxes in the United States[0]: > Simply put, any profit or gain that arises from the sale of a ‘capital asset’ is a capital gain. The tax is only incurred at the time of sale. If you don't sell anything then your accountant will report $0 in capital gains, even if the value of your assets (on paper) has increased. If you are invested in a mutual fund then (at least by US rules) you may have reportable short-term or long-term gains despite not actually selling any shares due to trading activity in the fund; the taxes are passed through to the fund's investors. However, this is unrelated to any change in the value of the fund's shares. [0] https://cleartax.in/s/capital-gains-income https://cleartax.in/s/capital-gains-income