Capital Gains Treatment

Capital Gains Treatment

How a government taxes capital gains, which are gains from investing in securities and other investment vehicles. In the United States, capital gains treatment is divided into short term and long term categories. The IRS taxes long term capital gains at a much lower rate (a maximum of 15% as of 2009) than short term gains (a maximum of 35%, which is identical to the highest income tax bracket). This is done in order to encourage long-term investing while discouraging (or at least not encouraging) short-term or speculative investing. In practice, accountants and investors have developed a variety of ways to attain long term capital gains treatment.