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Do you truly understand what "capital gains" are? Capital gains in its most basic sense of the definition is simply put return on investment over your basis (cost to invest) and is equal to earning a profit on sales.

If we were to increase taxes to the business owners for their sales would it inhibit their growth? Of course it would especially in a time of such extreme tax changes that have developed during 2007.

Let's consider an example of selling a rental property with a capital gain to be recognized. Currently the typical rate is 15% which is set to be changed to 20% in 2010. This means if I had to recognize $500,000.00 at 15% it would cost me $75,000.00 in capital gain taxes. On the other hand if I had to recognize the same $500,000.00 at 20% that would cost me an additional $25,000.00 for an even $100,000.00 making my actual profit $400,000.00 instead of $425,000.00.

On top of the obvious $25,000 this just cost me I want you to consider other downsides like re-investing opportunities being dampened by the loss of an extra $25,000.

That extra money properly invested in less than 20 years would potentially be a good half million on its own but now raising the tax that would be money taken away from your family.

Taxes are vital to the survival of the United States at this point and as the debates go on over whether to cut taxes or increase it is hard to make these decisions to invest without knowing what the future holds.

Tax planners will likely encourage their clients to sell before the tax increase meaning a large drop in stocks, real estate, and other various areas of investment. Many individuals and businesses would prefer to sell before the tax increase at a somewhat smaller gain than give that extra 5% to the IRS.

Learn more about this author, Starr Sheets.
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