6)How are dividends and capital gains treated differently than other income by the tax code?
maximize the share of profits that are in the form of capital gains--both realized and unrealized. Indeed, on individual tax returns, total realized capital gains exceed stock dividends by 73%.Details on existing capital gains tax breaks:Long term capital gains are currently only taxed at 15% and have no FICA payments. Income made this way saves a lot of money compared to traditional wages.Indefinite deferral of tax on unrealized capital gains: Capital gains are not taxed until assets are actually sold. As a result, investors can put off tax on their gains indefinitely. (They can also avoid tax on realized gains by selectively realizing losses on other investments in the same year.) This deferral is unavailable, of course, to other kinds of income such as savings account interest, evenif the money is left in the bank. Multi billionaire Warren Buffett, for example, has structured his investment company so that it hasn't paid a dividend since 1966. Instead, Buffett's $14 billion or so in accrued capital gains remain unrealized and thus untaxed.Capital gains tax breaks for gifts and inheritances: Currently, heirs can sell inherited property andpay no tax on capital gains that accrued prior to the time they inherit. In other words, capital gains taxes on inherited property are completely forgiven.In the case of gifts, the recipient takes over the giver's "basis" in the donated property--generallythe cost when the property was first acquired. That carryover of basis--instead of taxing the gain--allows a continued deferral of unrealized capital gains.
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- Fall '11
- FDMATH 108 Lesson 6 Homework