When you sell a security at a profit, Uncle Sam is going to claim his cut. The Internal Revenue Service charges a tax on capital gains on the sale of all capital investments, such as stocks, bonds or real estate. If you held the security for a year or less, you will be taxed the short-term capital gains rate. If you held it for longer than a year, you will be taxed at more favorable long-term rates.
Short-term Capital Gains
The tax on short-term capital gains generally parallels ordinary income tax rates. As of 2011, the top short-term capital gains rate is 35 percent, which is the same as the top marginal income tax bracket.
Long-Term Capital Gains
To deter short-term speculation, there is favorable tax treatment to stock sales where the holding period was longer than one year. Those in the 10 and 15 percent brackets for income tax will pay no capital gains tax, if they hold on to their securities for longer than one year. Those in higher tax brackets will pay 15 percent.
If you have sold a security at a loss, you can use that loss to offset any amount of capital gains in your portfolio. If your losses exceed gains, you can then use the remaining capital losses to offset up to $3,000 in ordinary income. If your losses exceed $3,000, you can carry it forward into future years.
In the context of a business acquisition, you must consider stocks and capital gains somewhat differently. If you acquire a business by purchasing its stock, you inherit the tax basis of all the business's property from the original owner. This is a less favorable deal for the buyer than buying the assets of the business, rather than the stock, because the asset buyer gets a step-up in cost basis. A higher tax basis results in greater deductions for depreciation, resulting in greater after-tax cash flow to the business. This is a complex area of tax law, however, and you may want to consult an experienced adviser before you structure a business purchase.