Question

What is the capital gains tax?

a. Tax that is paid to people who are self-employed
b. Tax that is used to provide income for retired and disabled people and their families
c. Tax that applies to profits made from the sale of investments and personal property
d. Tax that has to be paid on monies earned through regular and/or part-time employment

Answer 1

Capital gains tax is a tax on the profit made from selling investments or personal property. It is designed to encourage investment by offering lower tax rates than regular income tax.

Step-by-step explanation:

The capital gains tax is a tax that applies to the profits earned from the sale of investments or personal property, such as stocks, bonds, real estate, and valuable collectibles. When an individual sells these assets for more than the purchase price, the profit is considered a capital gain and is subject to this tax. This type of tax is separate from taxes paid on regular employment income, corporate income tax on company profits, or sales taxes applied to transactions.

In the United States, the government taxes these gains to encourage private investment, which theoretically stimulates economic growth. A major feature of capital gains tax is that the rates are generally lower than the income tax rate, with the intent of promoting savings and investment.