Question

List all of the ways in which the current tax code treats capital gains more favorably than wage income.

Answer 1

Income tax is paid on earnings from interest, dividends, employment, royalties, or self-employment, whether it's in the form of services, money, or property. Capital gains tax is paid on income that derives from the sale or exchange of an asset, such as a stock or property that's categorized as a capital asset.

A person's income tax percentage is variable based on his specific tax bracket, and this is dependent on how much income he makes throughout the entire calendar year. Tax brackets also vary depending upon whether a person files as an individual or jointly with a spouse. The U.S. uses a progressive tax system. Lower income individuals are taxed at lesser rates than higher income taxpayers on the presumption that the latter have a greater ability to pay more.

Capital gains tax is categorized as short-term or long-term, depending on how long the seller owned or held the asset.

A seller pays taxes at the long-term capital gains rate : 0%, 15%, or 20% in 2019, depending upon his total income. when he holds an asset for longer than one year before sale.

The amount of a capital gain is arrived at by subtracting the sales price, less depreciation, plus costs of sale and improvements from the sales price.

Long-term capital gains are not included in taxable ordinary income. They're taxed separately at their own rates.