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Capital Gains Taxes

James Welling, a 37 year old engineer has an appointment to meet you in about an hour. As you are reviewing his accounts, you notice that he is a fairly active trader. He seems to do pretty well with returns that outpace the averages, but you can't help wonder how much he ends up paying each year in capital gains taxes.
As his appointment time approaches, you prepare a short explanation of the way that capital gains taxes may be hurting his net returns and the difference between short-term gains and long-term gains.

Prepare some detailed discussion points that cover the following:

1. How capital gains taxes may be hurting James' net returns
2. The difference between short-term gains and long-term gains.

Solution Preview

The response is attachedPrepare some detailed discussion points that cover the following:

1. How capital gains taxes may be hurting James' net returns

An investor needs to be aware that capital gains will impact when to purchase or sell an asset. The capital gains tax rate varies based on the length of time an asset is held. An investor can actually avoid capital gains taxes or at least reduce the tax burden. An example of taking advantages of loopholes in stock capital gains taxes is for parents to give appreciated stock to their children to pay for college. In this case, the child will pay a ...

Solution Summary

How capital gains taxes may be hurting James' net returns are determined. The differences between short-term gains and long-term gains are determined.

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