Taxable Income And Capital Gains Under Existing Tax Laws

Taxable income is not as easy or simple as it sounds. Income can accrue in literally thousands of different manners. Determining what accretions are and are not taxable income is one of the most common and difficult problems for the tax payer. Some types of income have special characteristics and therefore require special treatment. Some types of income give rise to special problems of definition, time-period determination, irregularity, cost elements, and administration. If such problems arise, the law must make the pragmatic adjustments that will collect the revenue due and yet be fair and equitable to those operating in special circumstances. Usually the legislatures and the courts indulge in a practical economic analysis of the characteristics of the particular type of accretion in determining how it should be treated for tax purposes. The types of income that cause special difficulties are capital gains and losses, stock dividends, rental income, farm income, insurance proceeds, and many others. Try to find a lawyer to discuss your rights.
Economically speaking, a capital asset is any asset or property held for the further production of wealth or as a source of income. The capital gain results when an asset is sold at a price higher than the price at which the tax payer purchased it. Broadly speaking, when the value of an assets increases from the time of purchase without there being any sale or exchange, it gives rise to capital gains. There is a difference between capital gain or loss and the sale of "goods" in the ordinary course of trade. If the company is in the business of producing and selling hats, any gain made from the sale of the hats is ordinary income. However if the company sold one of its machines that it uses to produce hats, this would be the sale of a capital asset, subject to a capital gain or loss depending upon the price received for the machine. The latter type of gain or loss is an unusual or irregular one--one that arises outside the regular method of producing the company's business income. The tax statutes usually describe capital gains and losses as gains and losses from the sale of certain types of assets most of which conform to the economic concept. The federal "instruction sheet" defines capital assets as "all property" held by the taxpayer (whether or not connected with a trade or business), but it does not include (1) stock in trade held primarily for sale to customers in the ordinary course of trade or business, (2) real property "used" in the trade or business, (3) securities of governments in the United States issued upon a discount basis, and a number of other exclusions. Stocks are bonds are by far the more common type of capital assets. They serve the basis for well over 80 per cent of the capital gains reported in an average year. The second most significant item after stocks and bonds are rental real estate and private residences. Capital loss is not allowed on private residences. An experienced tax attorney can assist you determine your capital gains and losses.