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Definition:

Tax withholding is a type of procedure in which your employer withholds a portion of your earnings for taxes and pays a tax bill to the tax office in your name.

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What is tax withholding?
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Wages are rarely paid in full since your company takes a tax deduction equivalent to a portion of your wage and pays it to the tax office on your behalf. It is important to note that you can adjust the amount of the tax deduction from your pay by changing the number of benefits claimed on your form W-4. As a result, the more of these advantages you have, the less withholding tax will be deducted from your salary.

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The working principle of tax withholding
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One of the primary functions of the tax withholding is to enable the US government to collect taxes, social security, and medical care not just in a single sum when filing annual taxes, but also throughout the year. As a result, the US government, which requires companies to collect monthly withholding taxes from their employees, is certain that it will get funds.

This procedure is straightforward for US residents. When applying for a job, an employee must complete Form W-4, which supplies the employer with the information needed to compute the amount of withholding tax to be withheld from the employee’s income.

If the employee is a non-resident he must file Form 1040NR with the government to record his income and pay taxes on it. It is crucial to remember that even if they do not live in the United States for a long time, they must still pay taxes on the money they earn from conducting business in the United States.
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Normally, your company will charge you 90% of your withholding tax during the year, so you will not be late in paying taxes, but you will not pay extra. If, on the other hand, you have not paid the appropriate tax amount, you will have a tax liability that must be paid to the tax office. If, on the other hand, you paid more at the end of the year, the government will surely refund the excess amounts.

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What are the payroll taxes?  
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Payroll taxes include social security and health-care contributions. Your firm is required to pay two additional types of payroll taxes for each of its employees: FUTA (Federal Unemployment Tax Act) and SUTA (State Unemployment Tax Act). These taxes are used to fund unemployment benefits.

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How is a tax calculated?
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First, the new employee completes form W-4, in which he states how much taxes he wants the business to withhold from his pay. It is critical that an employee claims benefits in W-4, and the more allowances he shows, the higher his monthly income will be. However, you should be cautious when stating a high number of advantages: if the value of your benefits exceeds the amount of deductions at the end of the year, you will owe the tax service.

Following the W-4 form, the employer utilizes the IRS’s instructions to decide how much tax he should withhold. The IRS offers tables for businesses to use to determine how much to withhold based on the employee’s pay and marital status.

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Do you have a withholding tax?
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Yes. In the United States, practically everyone who earns money is required to pay withholding tax and FICA tax. Your employer, not you, is responsible for withholding taxes.

It is conceivable that individuals who give you a salary do not withhold taxes on your behalf if you work freelance or under contract. However, this does not absolve you of obligation. As a freelancer, you must pay withholding tax and FICA tax on a quarterly basis.

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Backup withholding – what does it mean?
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A backup withholding is a type of tax withholding that some people must pay. The tax rate is at 24%. Businesses and banks may be required to withhold taxes for backup deduction from a variety of payments, including interest, dividends, and other sources of revenue. If someone has not presented you with the required TIN (tax identification number), you must withhold money for a backup withholding as a business. This occurs if you hired a freelancer who did not give you this information. Furthermore, because you have not previously declared income and have not paid tax bills, you will be required to withhold taxes if the tax office tells you to do so.

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Definition:

Revenue is the actual amount of money earned by a firm from the sale of goods and services. It is usually used to assess the “health” of a firm.

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What is Revenue?
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As it has already been said, revenue refers to a company’s health. Actually, it is one of the main measures that show if the company is doing well. A high revenue, in general, signifies a developing firm. Weak revenue indicates that the business is not being kept at the proper level and is not growing. Typically, reviewing a company’s financial statements (or earning reports) may show you how well it is working. These reports include revenue as well as other indicators like costs and profit.
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Gross revenue is computed by putting up all of the money collected from the company’s sales throughout the time period covered by the financial results report.

Net revenue is a related statistic that is generated by deducting from gross income expenses that decrease revenue (total selling expenses).

Net revenue = Gross revenue – Total selling expenses

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Revenue vs. Profit
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The main difference between these indexes is that revenue doesn’t count the costs of the business like profit does. Profit is obtained by deducting expenses from revenue.

If the firm receives more money than it spends, it is profitable. When it receives less money than it spends, it is considered to be detrimental.

The company’s revenue is favorable in practically every report. If you didn’t make any sales, your revenue would amount to zero. Any costs made in this period would result in losses.
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In exceptional instances, businesses show negative revenue. A negative result might indicate a shift in accounting standards. A change in accounting affects how a corporation values its money or assets. Generally, volume loss may not indicate an actual drop in income.

While profit is determined by income, it is also determined by costs. The company’s revenue may rise, however if its costs increase faster, its profit will fall.

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How to calculate revenue?
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The revenue is not difficult to calculate. Revenue is the total amount of money received by the firm, excluding sales tax, which doesn’t belong to the business. The sales tax is the responsibility of the city, county, state, or any other government that supervises the region where the firm is located.

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Revenue = Sales?
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Not all of the time. The company’s revenue might be similar to its sales for the quarter or the fiscal year. As a result, you may hear revenue coupled with sales as “sales revenue” rather frequently. However, there are also non-operational revenue sources that aren’t linked to sales.

Non-operating revenue is generated through sources other than sales. If a firm holds stock in another company, all dividends paid on those shares are considered as revenue. Dividends paid on government bonds will also be considered as revenue.

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Revenue vs. Income
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Income and revenue are closely connected but in fact income is influenced by the revenue indicator. When we consider their “pure” forms (net), the contrast between these terms is more clear.

 1. Net revenue is the amount of revenue that remains after subtracting refunds and discounts.

 2. Net profit is the amount of money left over after deducting all company expenses. They are, for example:

• the cost of producing the things sold;
• the cost of delivering services;
• other expenditures such as salaries, rent, and so on.

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The key distinction between them is that net revenue doesn’t include costs. Furthermore, it simply focuses on situations in which the corporation earned less than it planned. Net profit varies from gross profit because it includes costs.

The net profit is frequently found in the financial statements. Revenue is nearly always reported in the front of the report, whereas net profit is almost always given near the bottom.

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Definition:

From individuals’ perspective, income is defined as money earned through working or the returns of their investments. From businesses’ perspective, it is what remains of a company’s revenue after expenses.

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How does it work?
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If you are an individual, the money you bring home at the end of the day is your income.

It’s quite simple to calculate your “income,” whether it comes from salary, investment gains, or business profits. However, “income” is a lot more complicated for enterprises. Businesses refer to the money that enters their bank accounts as “revenue.” They classify “income” in several ways (described below) to reflect how it has already been put to use, such as paying bills or taxes.
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Individual income is divided into two categories by the Internal Revenue Service (IRS). Your wage income constitutes your active income. The term “unearned income” refers to passive income, such as royalties, investment income, or, if you’ve suddenly struck it rich, gaming profits. In most developed countries individuals need to pay taxes on their income.

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Revenue VS Income
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If the words “revenue” and “income” are used together, it’s most likely in a commercial context. As a result, when you refer to “income,” it will mean something quite different than when you discuss individual income.

The term “revenue” in this context refers to the total sum of money received from a company’s sales. The money still available after expenses are covered is referred to as “income.” Let’s stick to the different types of income to help you understand the difference.

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Types of individual’s income
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There are three of them: earned income, portfolio income, and passive income:

 1. As the term suggests, earned income is money that you have worked for. This is labor converted into money, whether from pay or business ownership.

 2. Earnings from investing activities are referred to as portfolio income. Dividends, interest, and capital gains (profit from selling securities or investments that have appreciated in value) all fall under this heading.

 3. The IRS defines “passive income” as earnings from firms you possess a share in or from rental properties in which you “do not materially participate.”

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Disposable and discretionary income
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Your disposable income is the amount of money that is left over after paying income taxes, Social Security and Medicare taxes (FICA), and any pre-tax deductions for things like retirement and health insurance. But before you go on a spending binge, you still need to make your payments on time. This category of funds is used to pay for basics like housing, food, and other things.

If anything is left, it is your discretionary income. Discretionary income is for the enjoyable “extras” in life. This involves eating out, traveling, enjoying yourself, engaging in hobbies, and possibly investing.

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Gross profit and net income: the difference
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After the cost of products sold, profits are referred to as gross profits. Profits before taxes, depreciation, and interest are referred to as operating profits. When a business refers to “income,” it usually means net earnings, which are profits after taxes. All of these are listed on an organization’s income statement.

That’s a crucial distinction to make as net income occasionally falls well short of gross profit. Take ownership of a used car dealership that sells $1 million worth of used vehicles annually as an example. Your wholesale cost for the automobiles is $600,000. This indicates that you made a $400k gross profit.

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EXAMPLE

Let’s say you have a jewelry store that sells $1.3 million worth of jewelry in a year. The jewelry itself will set you back $800,000. This means you have a gross profit of $500,000.

But running a jewelry store costs a lot of money, from saloon rentals to advertising costs. Based on this, it costs the business $200,000 in operating expenses.

This is an operating profit of $300,000. But you have $20,000 in interest expenses and also $20,000 in depreciation (expenses on capital assets) that are needed, bringing the total profit to $260,000. If your tax rate is 50%, that gives you only $130,000 in income per year.

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Definition:

Real estate investment trusts own and manage various forms of real estate providing shareholders with access to real estate without purchasing it.

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What is a REIT?
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These are corporations that own property on behalf of their shareholders/investors.

Investors like REITs because they offer a diverse approach to real estate ownership, with each REIT shareholder owning a unique property. REITs, on the other hand, differ from other investments because there are several rules investors should follow.

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Different types of REIT
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There are four main types of REIT:

• Equity
• Mortgage
• Private
• Public non-listed

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Almost all real estate investment funds are classified as stocks since they are often listed on the stock exchange and generate income through rent. That is why they fall into “equity”.

Mortgage REITs, on the other hand, earn on the property’s financing and debt. Mortgage interest payments will be the source of revenue for these trusts.

Private real estate investment funds seek the institutional market. Because they are directed at accredited investors, they do not require Securities and Exchange Commission registration or approval (people or businesses who have the opportunity to trade certain securities that may not be regulated).

Public non-listed REITs are not traded on a stock exchange. Typically, investors gain access to these types of real estate investment funds from a financial consultant or another agent.

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REIT criterias
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Several conditions must be completed before a real estate operator may qualify for a REIT.
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Shareholder base: The firm must have more than 100 shareholders, with no more than 5 depositors owning 50% of the shares. A business must have a fixed number of controlling stakeholders in order to qualify as a REIT.

Fully invested: 75% of the overall investment pool must be involved in real estate, with rent accounting for the same amount of revenue.

Dividend happy: 90% of the REIT’s profits should be paid to shareholders.

Structure: REITs are only available to taxable firms and corporations.

Management Board: The business must have a working board of directors with a set number of directors.

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Advantages & disadvantages of REITs
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The most important benefits are:

Flexibility: Apart from traditional ownership, several REITs may be purchased and sold on the stock market within a day, and cash can be obtained within three days. We actually mean liquidity while speaking about flexibility.

Higher payout percentage: In order to be considered as a REIT, a corporation must follow the payout rule, which states that 90% of income must be delivered to shareholders.

Diversification of property: A shareholder can get access to many sorts of property, such as commercial, medical, and infrastructural.
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Some of the drawbacks of participating in a REIT are as follows:

Minimal tax advantages: Dividend payments are counted as income. Long-term gains are generally taxed at a lower rate than income.

The 90% rule: While this is a benefit, it may also be detrimental and limit progress. Because REITs must disperse the majority of their earnings, the capital given to new programs or investments is restricted.

Fees: It is an essential component of the REIT ecosystem. Fees may be greater than those charged for other investments.

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How to invest in REIT
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Investing in equity or mortgage REITs is an easy procedure because they are traded on the NYSE, Nasdaq, and other serious trading platforms. If the investor has shares in these firms on the application deadline, they will be paid dividends. Non-listed trusts, on the other hand, are difficult to obtain, and most investors must apply through a financial consultant or broker.

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Investing in houses or in REIT: the best strategy
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It is important to understand that they differ from one another.  Buying and holding a property, for instance a house, usually carries a high level of risk. This means that the owner will be unable to compensate for changing market conditions.

The amount of investment choices available contrasts house ownership from a REIT. REITs allow investors to obtain access to many forms of property, such as commercial property, infrastructural facilities, hospitals, and so on.

Another consideration in comparison is liquidity. If an investor wants to sell his shares in an equity or mortgage REIT, he can do so through his brokerage account. The entire procedure, from start to finish, might take several days. And selling a property may take weeks, if not months, and can be costly when the agent’s fee and other costs related with preparing the house for sale are included in.

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Definition:

Inflation is defined as the gradual increase in the price of goods and services, which results in a decrease in the purchasing power of a given currency.

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What is Inflation?
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As inflation increases, less and less goods and services can be bought with the same amount of money because inflation reduces the value of the dollar (or other currency). The measure of inflation over time is known as the inflation rate. These changes appear in many areas of our lives.

If you think about it, rising prices of housing, food, fuel, and consumer goods occur for a reason-these processes are the result of rising inflation. But it’s not all bad: moderate inflation can bring some benefits, such as reducing the national debt. Nevertheless, consumers tend to focus most of their attention on the decreasing solvency of their money.

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What are the causes of inflation?
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Here are three main causes of inflation:

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– Demand-pull inflation

Demand-pull inflation occurs when demand for goods and services exceeds supply. Buyers are willing to pay more, so suppliers raise the price.

– Cost-push Inflation

This phenomenon occurs when the cost of producing a product increases. It may be caused by an increase in labor costs or an increase in the cost of raw materials to produce a product.
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– Built-In Inflation

The third type of inflation that we will look at is built-in inflation. As prices of goods and services increase, wages must also rise. As wages rise, so do the costs of doing business. So, eventually, prices must rise as well.

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Analysis of inflation in America
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The inflation rate is determined by experts based on the past year, this means that the inflation rate for 2023 will be estimated at the beginning of 2024. As we found out earlier, this value depends on many factors, so it can change from year to year.
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For instance, the inflation rate in 2020 was 1.2%, in 2021 it was 4.7%, and in 2022 inflation peaked in June at 9.1%, but had already slowed to 6.5% by December. According to experts, the CPI inflation rate could drop to 2.5% by the end of the year in 2023.

However, inflation does not necessarily always have to rise. A negative inflation rate is called deflation, a phenomenon when a dollar or other currency can suddenly buy more goods and services than before, but such cases have been extremely rare for the world economy in the past few years.

In addition, there is the term hyperinflation, in which the rate of inflation increases too quickly. Periods of inflation and deflation often correlate with bull and bear markets. A bull market is more likely to experience inflation; a bear market is more likely to experience deflation.

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Inflation indexes
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There are two main ways to track inflation: one is consumer-oriented, the consumer price index (CPI); the other is producer-oriented, the wholesale price index (WPI) or the producer price index (PPI).

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1. Consumer Price Index

This index measures inflation by analyzing changes in prices of goods and services in various industries. The main industries included in this calculation are food and beverages, housing, clothing, transportation, education and communications, recreation, health care, and other goods and services.

2. Wholesale Price Index or Producer Price Index

The Wholesale Price Index (WPI) is similar to the Consumer Price Index because it, too, tracks changes in the price of goods. However, instead of tracking prices at the consumer level like the CPI, the WPI tracks changes at the producer level. Consequently, it is based on the price of goods sold in bulk from one company to another, rather than from company to consumer.

However, after 1978, the Wholesale Price Index was replaced by the Producer Price Index (PPI), which includes prices for both services and goods.

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Calculating Inflation
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The inflation rate is easy to find using the CPI inflation calculator created by the U.S. Bureau of Labor Statistics (BLS). The BLS uses the following calculation to determine the inflation rate:

Increase in Inflation = Final Consumer Price Index / Initial Consumer Price Index.

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‍Inflation: advantages and disadvantages
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The perception that inflation is always a bad thing has become entrenched in society. Of course, people have a right to think so, as with this phenomenon, everything becomes more expensive. However, this does not mean that inflation has no pluses.
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The Pros of Inflation

First of all, a moderate rate of inflation is a sign of economic growth. It is normal that when the economy is healthy, inflation rises slightly.

The second positive effect of inflation on the economy is less obvious, but no less significant: As the value of the dollar decreases, so does the value of debt. Income usually rises as inflation rises, which means that your monthly debt payments can take up a smaller portion of your income.
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The Cons of inflation

The downside of inflation is perhaps more obvious. Inflation lowers the value of the dollar and makes goods and services more expensive. Of course, higher spending is always unwelcome in society, but if incomes rise at a slower rate than inflation develops, they can become a serious problem for much of the population.

Inflation can also damage savings and retirement accounts. Money that is earned over time will eventually have more solvency than money held in savings and retirement accounts, so a potential pension will be less solvent than it may seem now.

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Definition:

Capital gains tax is a compulsory payment that is paid to the government when a person sells an asset (e.g., stock or real estate) for the purpose of making a profit.

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What is Capital Gains Tax?
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Capital gains tax applies to both individuals and businesses. It is paid when the underlying asset (such as stocks or bonds) is sold and a profit is earned.

In general, capital gains are divided into two categories: short-term and long-term. Short-term capital gains are gains from assets that have been owned for less than one year. Such capital gains are taxed as ordinary income, so the tax rate is generally higher than for long-term capital gains.

Long-term capital gains are taxed more leniently. It represents gain on the sale of an asset that has been owned for more than one year, and depending on your tax bracket, the long-term capital gains tax rate is either 0%, 15%, or 20%.

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Capital gains tax rates
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Before looking at the tax rates on capital gains, it is important to mention that the tax on both short-term and long-term gains is paid the year after the year of gain.

For instance, five years ago you bought a Manhattan apartment for $1,000,000 to sell it at a higher price a few years later. Then in 2023, you wanted to sell that property for $1,470,000. First, your profit, which would then be taxable, would be $470,000, and second, you would have to pay the tax the next spring, in 2024.

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Short-Term Capital Gains Tax
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This category includes investors who want to sell their stock or property for a profit but have owned it for one year or less. Such gains from the sale are taxed in the same way as ordinary income.

Here you can see the interest rates for corporations in 2022 and 2023:

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Long-Term Capital Gains Tax
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Another category is long-term investments – if stock or real estate has been owned for more than one year, the tax rate on gains from the sale of these assets can be greatly reduced.

For individuals, the following capital gains tax rates are presented:

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Strategies to reduce capital gains tax
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– Real estate sales tax

If a single person owns the property and sells it for profit, gains of up to $250,000 are not taxable (if the person is married, the amount doubles to $500,000).

However, this capital gains tax exemption has several exceptions and does not apply if the property owner:

• has not lived in the home (i.e., it is an investment property)
• is living abroad
• has not owned the house and has not lived in it for 2 years during the 5-year period preceding the date of sale.

A homeowner who has already used their $250,000/$500,000 CGT tax credit in the past two years will also not be able to apply for the exemption.
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– Gifts

Family gifts can be used to reduce the amount of capital gains tax. A family member can give up to $15,000 each year to another family member as a gift. A married couple can gift up to $30,000 to a relative. So if you gift a valuable asset to a family member who is in a lower tax bracket, together you can minimize the tax burden on your family.
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– Keeping

The obvious alternative to paying short-term capital gains tax is to simply keep your investment. Generally, a person’s capital gains tax liability is greatly reduced after a one-year period. Of course, this should be considered in the context of your overall investment strategy.

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Definition:

Interest is the cost of borrowing money — what you pay to borrow someone else’s or what you charge those to whom you lend.

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People don’t like to just share, especially if they are not sure they will get their loan back – that is why interest exists. Lenders can feel confident parting with their money for a while and taking on all the dangers that goes along with it when they receive interest.

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What is interest?
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The cost of borrowing money is known as interest and is typically stated as a percentage. Interest rates change over time, and a variety of factors determine the particular rate you might earn or pay. The going rates of the day, which are determined by the interest rate the Federal Reserve, the nation’s central bank, charges other banks to borrow money, are a crucial factor to take into account. In order to promote economic growth and combat unemployment, the Federal Reserve frequently reduces interest rates; conversely, when the economy is doing well, it rises rates.

Your lender will also take your borrower risk into account when setting your specific rate.This includes elements like your credit history, the amount of debt you are carrying relative to your income, and any troubling financial incidents from the past, such bankruptcies. Different methods of calculating interest might be used, but they all serve the same objective: to give the lender confidence to lend you money in light of the opportunity cost and risks associated.

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How does it work?
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Four factors determine how much interest you pay (or make, if you’re the lender):

 1. The sum of money being lent

 2. How long it will be lent for (the length of the loan)

 3. How frequently is interest calculated (daily, monthly, annually, etc.)

 4. The rate of interest

Given that interest is determined as a proportion of the loan amount, your interest payment will generally increase with the amount of borrowing. In general, borrowing will cost more the longer you keep the loan because interest can accrue more slowly.

The frequency of interest calculations affects how much money you owe overall as well. The general rule is that the ultimate sum will be bigger the more frequently interest is calculated. Therefore, even if the initial loan amount and period are the same, 3% computed monthly will result in a higher interest rate than 3% calculated annually.

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Interest formulas
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The most popular method of calculating interest in consumer finance is the annual percentage rate, or APR. This is probably the figure you’ll see when applying for a credit card, auto loan, or mortgage, expressed as a percentage. APR typically covers all annual expenses related to the loan in addition to interest. Therefore, the $10 arrangement fee that a payday lender imposes will undoubtedly be reflected in the APR.
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APY (Annual Percentage Yield) is also expressed annually, but unlike APR, it also factors in how often interest is calculated. So if your interest rate is 3% annually, with no additional fees, your APY is 3%. If your interest rate is 3% calculated monthly, then your APY is actually 3.04%.

(The formula for APY is (1 + r/n)^n – 1 where r is the interest rate and n is how often interest is calculated.)

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Simple vs Compound Interest
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Simple interest is calculated by multiplying the interest rate by the principal (or the original amount borrowed). Compound interest is calculated by multiplying the interest rate by the principal plus any unpaid interest. As a result, the more frequently interest is calculated or compounded, the more interest is paid or earned in total.

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How is interest calculated?
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Let’s discuss an example, taking into consideration four key factors:

 1. The amount of money being borrowed, also known as principal (P)

 2. The length of the loan (t)

 3. How often interest is calculated (n)

 4. The interest rate (i)

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For example, you take out a $2,000 loan (P) for two years (t) at a rate of 3% (i). There is no compounding, so you can use the simple interest formula:

P(1 +rt)

So it will be: $2,000(1+(0,03*2)) = $2120

At the end of two years you would owe $2120 ⁠— That’s the $2000 principal plus $120 of interest.
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Now imagine the 3% compounds monthly, so the formula for compound interest is:

P(1 + i/n)^nt

Then the answer will be:

$2000 (1 + 0,03/12)^(12*2) ~ $2123,5

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Good interesting rate
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‍An exact definition of a “good” interest rate is not known. Lenders typically seek the highest rate available, but borrowers typically want the lowest. Your ability to obtain a rate will be influenced by a number of elements, including your creditworthiness and current market rates.

How can you tell if an interest rate is good if it is offered to you? Examining typical market prices is a fantastic place to start. For instance, you can discover the most recent rates for a range of goods utilizing Bankrate.com.

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