A capital gain realized by the sale or exchange of a capital asset that has been held for exactly one year or less. Short-term gains are taxed at the taxpayer's top marginal tax rate.A short-term gain can only be reduced by a short-term loss. A taxable capital loss is limited to $3,000 for single taxpayers and $1,500 for married taxpayers filing separately. Short-term gains and losses are netted against each other. For example, assume a taxpayer purchased and sold two different securities during the tax year: Security A and Security B. If he/she earned a gain on Security A of $5,000 and a loss on Security B of $3,000, then the net short-term gain is $2,000 ($5,000 - $3,000).
A mutual fund or ETF that has a dual strategy of capital appreciation (growth) and current income generation through dividends or interest payments. A growth and income fund may invest only in equities or in a combination of stocks, bonds, REITS and other securities. Growth and income funds are popular among investors with moderate (but not excessive) appetites for risk – the ever-popular “balanced investor.” Although returns will typically lag those of pure growth funds, sometimes high-yielding stocks become favored in the stock markets, driving up the growth and income funds to superior performance. The stability of these funds appears most attractive when the broad economy looks to be weakening.
A tax year, whether fiscal or calendar, that is less than one year in length. Short tax years occur either when a business is started or the method of accounting is changed. Short tax years occur only for businesses, never for individual taxpayers, because individuals must file on a calendar-year basis and do not have the option of choosing a fiscal year. If a business begins in the middle of May, and the business owner wishes to file on a calendar-year basis, the business will have a short tax year, with income and expenses for only 8.5 months reported on the 1040. A similar situation would occur if the business owner wished to use a fiscal year that began in a different month than that in which the business was established.A short tax year can also occur when a business desires to change its taxable year. For example, a business that reports income from June to June every year decides to change its fiscal year to begin in October. Therefore, a short tax year from June to October must be reported.
A tax imposed on the removal of nonrenewable resources such as crude oil, condensate and natural gas, coalbed methane and carbon dioxide. Severance tax is charged to producers, or anyone with a working or royalty interest, in oil or gas operations in the imposing states. You may be charged severance tax even if you do not realize a net profit on your investment. Certain wells may be exempt from severance tax based on the amount they produce. Different states have different rules. For example, in Colorado, as of 2008, an oil well that produces less than an average of 15 barrels per producing day, or a gas well that produces less than an average of 90,000 cubic feet per producing day, is exempt from this tax.It is important to note that severance tax is different from income tax, and you still have to pay all federal and state income taxes on oil and gas income in addition to severance tax.
An estate planning technique that minimizes the tax liability existing when intergenerational transfers of estate assets occur. Under these plans, an irrevocable trust is created for a certain term or period of time. The individual establishing the trust pays a tax when the trust is established. Assets are placed under the trust and then an annuity is paid out every year. When the trust expires the beneficiary receives the assets tax free. Under these plans, the annuity payments come from interest earned on the assets underlying the trust or as a percentage of the total value of the assets. If the individual who establishes the trust dies before the trust expires the assets become part of the taxable estate of the individual, and the beneficiary receives nothing.
A government-imposed tax levied in an attempt to provide funding towards theoretically unifying (or solidifying) projects. The tax acts in conjunction with income taxes and places an additional burden on tax payers, including individuals, sole proprietors and corporations. The solidarity tax is generally calculated based on a percentage of the tax bill. For instance, in Germany, taxpayers must pay an additional 5.5% of their yearly tax bill towards the solidarity tax. The solidarity tax has been introduced in several nations, most notably Germany, whose solidarity tax was utilized to help rebuild eastern Germany. Since the solidarity tax is intended to be a short-term surcharge or supplementary tax on top of regular income taxes, the long-term German solidarity tax has been under scrutiny for being unconstitutional.
The accelerated benefits employees receive as they increase the duration of their service to an employer. A vesting schedule is mandated by federal law for the employers' contribution portion of private retirement plans. It specifies the minimum number of years a company may require employees to work in order to earn the vested right to all or part of the employer contributions. A graduated vesting schedule for a defined benefit plan requires an employee to have worked for a certain number of years in order to be 100% vested in the employer funded benefits. For example, an employee may have to work for seven years to become fully vested, but will be 20% vested after three years, 40% vested after four years, 60% after five years, and 80% after six years of service.
The sole proprietor is an unincorporated business with one owner who pays personal income tax on profits from the business. With little government regulation, they are the simplest business to set up or take apart, making them popular among individual self contractors or business owners.Many sole proprietors do business under their own names because creating a separate business or trade name isn't necessary. Sole proprietorship is also known as "proprietorship". There is no separate legal entity created by a sole proprietorship, unlike corporations and limited partnerships. Consequently, the sole proprietor is not safe from liabilities incurred by the entity. The debts of the sole proprietorship are also the debts of the owner. However, all profits flow directly to the owner of a sole proprietorship.The benefit of the sole proprietorship is the tax advantage. The disadvantage of a sole proprietorship is obtaining capital funding, specifically through established channels, such as equity (selling shares) and obtaining bank loans or lines of credit. As a business grows it often transitions to a limited liability company (LLC) or S corporation.
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