The Finatical
Week of May 31st, 2022 - Capital Gains Tax, Rise of Privacy Tech in Finance, Growing Technology Regulation
Topic Breakdown - Capital Gains Tax
An Introduction
The profit earned on the sale of an asset that has risen in value, after you have held it for some period of time, is called a capital gain. An asset could be a car, company, or stock, etc. Essentially, a capital gain happens when you sell an item for more than you purchased it for. Because of their inherent price volatility (fluctuation), capital gains are generally linked with assets such as stocks and funds. Capital gains are classified into two types: Short-term capital gains are those earned on assets sold after a year or less of ownership. Long-term capital gains are earned on assets sold after more than a year of ownership. In today's article, we will be learning more about capital gains in the stock market, and capital gains taxes.
How They Work
The capital gains tax is a tax imposed on the profit made on an investment when it is sold. When a stock or other taxable investments are sold, the capital gains or earnings are referred to as "realized." Unsold investments and "unrealized capital gains" are exempt from the tax. Stock shares will not be taxed until they are sold, regardless of how long they are kept or how much their value increases. Another important thing to know about capital gains taxes is that the total capital losses sustained in the year can be deducted from the taxable capital gains for the year. In other words, you must pay tax on your net capital gain. There is a $3,000 annual limit on reported net losses, but the remaining losses can be carried over to subsequent tax years. This means that if you sold some stocks at a loss, those amounts (up to $3000 a year) will be subtracted from your gains in terms of taxes. There are also short-term and long-term capital gains taxes. Only earnings from the sale of stocks held for more than a year are subject to the long-term capital gains tax rates. The current rates are 0%, 15%, and 20%, depending on the taxpayer's tax bracket for that year. The short-term capital gains tax applies to assets sold within one year of their purchase date. This profit is subject to ordinary income taxation. Except for the very wealthy, this is a higher tax rate than the long-term capital gains rate. This is why many people try to wait at least a year before selling their investments. Most taxpayers pay a higher rate on their income than they do on any long-term capital gains. This provides them with a financial incentive to keep investments for at least a year, after which the profit tax will be reduced.
How To Calculate Them
It is also useful to know how to calculate how much capital gains tax you will be paying, so we will go over the calculation process. To determine your taxable gains for the year, subtract capital losses from capital gains. If you've had capital gains and losses on both short-term and long-term investments, the computation becomes a bit more complicated. First, differentiate short-term gains and losses from long-term gains and losses. The short-term losses are then summed. Finally, long-term profits and losses are computed. The short-term profits are subtracted from the short-term losses to determine the net short-term gain or loss. The same is true for long-term gains and losses. Most people calculate their taxes (or have a professional do it for them) utilizing software that does the calculations automatically. However, you may utilize a capital gains calculator to obtain an estimate of how much you would pay on a projected or actualized sale.
Financial Trends
Rise of Privacy Tech in Finance
The development of digitization in our society has resulted in a significant number of events regarding information and data privacy. As a result, it has disrupted the way society thinks about traditional records management causing new popularity with privacy-enhancing technologies in 2022. Currently, records management programs are focused on satisfying the minimum mandatory retention inspections, regulated by the federal and state banking regulators. As there continue to be stricter privacy regulations, businesses that are looking to maintain their consumer data are considering satisfying consumer requests and ensuring their data is secure. As a business starts to expand its data disposition strategy and framework, it needs to be able to balance the risks with the value of data for it to remain in business.
A common way that businesses are able to maintain balance with the risks and value of data is by categorizing assets. These include strategic assets and toxic assets. Some forms of strategic assets are current and future value, market research, and analysis, protection against legal and regulatory fines, informed business decisions, and competitive advantage. The types of toxic assets that a company possesses are increased security risks, storage and management costs, reputational damage, legal and regulatory liability, and inefficient business operations. Companies need to rethink their enterprise strategies across their personnel, processes, and technology so they are better positioned to tackle stricter regulations. They also need to be ready for implementing a disposition framework that will measure and mitigate the risks and rewards associated with the companies’ data.
Growing Technology Regulation
The complexity when it comes to dealing with trade risks is difficult because they are always evolving, especially with the remote working environments that people have gotten used to due to the pandemic. Since employees have the flexibility to work from home and not attend the office, it is a lot more challenging for companies to monitor their behaviors and conversations, which would help in deciding whether that employee should stay in the company or not. In order to combat this issue, the SEC has stated that it is now more important than ever for firms to monitor their trading activities and eCommerce data very closely. Additionally, the Financial Conduct Authority (FCA) has emphasized the importance for companies to have complete and accurate transaction reporting as it provides data that the regulator uses for detecting suspicious behavior.
There are already a lot of firms that follow a holistic approach towards addressing anything that is a form of misconduct with trading activity and eCommerce data. However, one key thing that the majority of these firms are missing when addressing these risks, is their integration with dealing with these issues. For years, trade surveillance and eCommerce surveillance were separate and still are but artificial intelligence (AI) technologies like machine learning that are able to be integrated into compliance technology at the same time, it has enabled companies to have efficient and better data sharing and communication amongst different systems and processes.
Financial Guidance
“The only man who never makes mistakes is the man who never does anything.” ― Theodore Roosevelt
Mistakes are something that even the most experienced investors make, so don’t be afraid to act due to fear of making a mistake.
Money Fact
Did you know that even though they’re made of the same material, different bills have different life expectancies? Smaller bills tend to have smaller expectancies, as they are exchanged more frequently.