Economy
What is Capital Gains Taxation and How to Optimize it?
If you have ever traded any securities on the capital markets, chances are that you have paid capital gains taxes before, provided the country of your residence levies such taxes.
Capital gains taxes are levied on the profit generated by buying and selling a particular asset or financial security.
For example, if an investor buys 10 Apple stock for $200 per share and then sells the entire investment for $220 per share, the taxable profit is $200.
Taxes on FX gains are levied at different rates, depending on the length of the holding period of the investment. Long-term capital gains taxes are levied after at least 12 months of holding an asset, while anything less is treated as a short-term capital gain.
In order to better understand how capital gains taxes work and how to optimize your strategies against them, we can look at several examples below.
Example 1 – Long-term capital gains tax
Long-term capital gains taxes in the United States are levied at a rate of 0%, 15%, or 20%, based on income levels and filing status.
Typically, long-term capital gains taxes are levied on asset sales after at least 12 months from purchase. Therefore, if an investor sells an asset 2 years after purchase, the profit will be treated as a long-term capital gain and taxed accordingly.
In other countries, long-term capital gains may have a flat tax rate. For instance, France upholds a long-term capital gains tax of 30%, regardless of the type of instrument.
Example 2 – Short-term capital gains tax
If we look at an example of short-term capital gains taxation, we can see that short-term gains are much easier in terms of tax handling, particularly in the United States, where short-term capital gains are taxed at the ordinary federal and state income tax rates.
For example, if an investor buys $100,000 worth of shares and sells them at a 10% profit in 6 months, the $10,000 difference would be taxable at a rate of 22%, assuming the investor has no other sources of income.
In general, the federal taxes levied on short-term capital gains range from 10% to 37%, with an additional state tax based on place of residence.
Are capital gains taxes universal?
Similarly to any other type of tax levied by governments, capital gains taxes can differ considerably based on the jurisdiction where you reside.
For example, short-term capital gains taxes in the United States are charged at the ordinary income levels, which means that the taxes on short-term capital gains are levied at rates between 10% on the lower end and 37% on the higher end.
On the other hand, a number of countries do not charge capital gains taxes at all. Some such jurisdictions include: Switzerland, Singapore, the UAE, Monaco, Malaysia, Belgium, New Zealand, and more.
In most cases capital gains taxes are levied at income tax levels, while in some cases, they are entirely separate and taxed at a separate, but smaller, rate.
Optimizing your capital gains tax
A key difference between capital gains and other taxes is that capital gains taxes can be optimized, leading to a smaller tax burden overall.
There are several ways of optimizing your capital gains taxes, especially if you reside in the United States and have a SSN, as a number of tax-advantaged investment accounts are available to US residents and citizens, such as: The 401(k), Roth IRAs and Regular IRAs.
In the United Kingdom, you can choose an Individual Savings Account, or ISA. These accounts allow you to close your investments tax-deferred, meaning you do not have to pay capital gains taxes when using them.
Another strategy you can use is tax-loss harvesting, which is done by selling losing investments to offset taxable capital gains. If losses exceed gains, many jurisdictions allow to carry forward excess losses to future years. However, it is also worth noting that tax-loss harvesting can only be done up to $3,000 in the United States.
Conclusion
Capital gains taxes are levied on the profit generated by buying and selling financial securities and other assets.
The rates of capital gains tax differ considerably between jurisdictions and some countries do not levy capital gains taxes at all.
In general, there are two types of capital gains taxes – Short-term and longterm. In most cases, short-term capital gains are taxed as ordinary income, while long-term capital gains taxes are treated as a distinct subcategory of income tax.
For those seeking to optimize their capital gains taxation to avoid overpaying, they can use strategies, such as tax-loss harvesting up to a certain point, or invest and trade using a IRA or other tax-deferred investment/savings account.
By Dipo Olowookere
A total of 2.819 billion stocks worth N182.499 billion exchanged hands in 226,729 deals on the floor of the Nigerian Exchange (NGX) Limited last week, in contrast to the 3.648 billion stocks valued at N220.568 billion transacted in 251,861 deals a week earlier.
From this, financial shares accounted for 2.006 billion units sold for N99.697 billion in 96,171 deals, contributing 71.17 per cent and 54.63 per cent to the total trading volume and value, respectively.
Consumer goods equities traded 178.863 million units worth N7.872 billion in 26,637 deals, and energy stocks recorded a turnover of 151.237 million units valued at N38.309 billion in 16,879 deals.
First Holdco, FCMB, and Access Holdings accounted for 939.402 million units worth N57.673 billion in 19,051 deals, contributing 33.33 per cent and 31.60 per cent to the total trading volume and value, respectively.
Business Post reports that the performance indicators were mixed in the five-day trading week, as the All-Share Index (ASI) depreciated by 0.14 per cent to 243,462.13 points, while the market capitalisation appreciated by 0.39 per cent to N157.057 trillion.
All other indices finished higher except the main board, consumer goods, energy, Lotus II, industrial goods, growth, and sovereign bond indices, which fell by 1.54 per cent, 0.15 per cent, 0.11 per cent, 0.40 per cent, 6.26 per cent, 0.09 per cent, and 0.33 per cent, respectively, while the commodity index closed flat.
Forty-four shares gained weight in the week versus 60 shares of the preceding week, 35 equities depreciated versus 28 equities in the previous week, and 67 stocks closed flat versus 58 stocks of the earlier week.
The best-performing stock was First Holdco, which gained 38.66 per cent to trade at N95.95. Thomas Wyatt expanded by 27.16 per cent to N3.09, Fidelity Bank grew by 15.00 per cent to N21.85, Learn Africa grew by 14.44 per cent to N10.30, and UBA chalked up 10.98 per cent to close at N45.50.
The worst-performing stock was BUA Cement after giving up 18.99 per cent to quote at N275.60, Red Star Express shed 18.53 per cent to end at N20.00, International Energy Insurance declined by 15.27 per cent to N4.66, C&I Leasing dropped 13.28 per cent to N5.55, and PZ Cussons crashed by 10.06 per cent to N80.95.
By Adedapo Adesanya
Central Securities Clearing System (CSCS) Plc kept the NASD Over-the-Counter (OTC) Securities Exchange in the green territory by 0.04 per cent on Friday, July 16.
The securities depository company added N2.50 to its share price to settle at N95.14 per unit from the preceding session’s N92.64 per unit.
However, FrieslandCampina Wamco Nigeria Plc slid during the session by N5.85 to N141.81 per share from N147.66 per share.
But when the bourse closed for the day, the market capitalisation increased by N1.08 billion to N2.593 trillion from N2.592 trillion, while the NASD Security Index (NSI) appreciated by 1.80 points to 4,320.67 points from 4,318.87 points.
During the session, the value of securities slid by 38.9 per cent to N63.5 million from N104.1 million, the volume of securities went down by 34.5 per cent to 1.2 million units from 4.8 million units, and the number of deals declined by 15.4 per cent to 33 deals from 39 deals.
Great Nigeria Insurance (GNI) Plc was the most traded stock by value on a year-to-date basis, with 3.4 billion units valued at N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units worth N6.5 billion, and CSCS Plc with 75.4 million units traded for N5.3 billion.
GNI Plc also ended the day as the most traded stock by volume on a year-to-date basis, with 3.4 billion units exchanged for N8.4 billion, followed by Infracredit Plc with 2.3 billion units sold for N6.5 billion, and Resourcery Plc with 1.1 billion units transacted for N415.7 million.
By Dipo Olowookere
The bulls regained control of the Nigerian Exchange (NGX) Limited on Friday after surrendering power to the bears a day earlier as a result of mild selling pressure.
Yesterday, the Nigerian bourse rebounded by 0.54 per cent, mainly due to the gains recorded by First Holdco and others.
Data harvested by Business Post indicated that the industrial goods and energy sectors were flat, while the banking index chalked up 3.13 per cent. The insurance space expanded by 1.08 per cent, and the consumer goods counter rose by 0.21 per cent.
Consequently, the All-Share Index (ASI) went up by 1,316.52 points to 243,462.13 points from 242,145.61 points, and the market capitalisation grew by N850 billion to N157.057 trillion from N156.207 trillion.
The market breadth index was bullish during the last trading session of this week, printing 31 appreciating stocks and 23 depreciating stocks, representing strong investor sentiment.
First Holdco led the advancers’ log after it climbed 9.97 per cent to N95.95, Haldane McCall appreciated by 9.94 per cent to N3.65, LivingTrust Mortgage Bank soared by 9.73 per cent to N3.72, LASACO Assurance jumped by 5.26 per cent to N2.00, and Thomas Wyatt gained 5.10 per cent to quote at N3.09.
On the flip side, Red Star Express declined by 9.50 per cent to N20.00, Omatek slipped by 6.08 per cent to N1.70, C&I Leasing shrank by 5.93 per cent to N5.55, Jaiz Bank crashed by 5.03 per cent to N8.50, and Livestock Feed fell by 3.89 per cent to N8.65.
As for the activity chart, market participants bought and sold 685.9 million equities for N42.7 billion in 44,134 deals on Friday versus the 498.5 million equities worth N34.9 billion traded in 39,484 deals on Thursday, implying a rise in the trading volume, value, and number of deals by 37.59 per cent, 22.35 per cent, and 11.78 per cent, respectively.
Investors’ darling for the day was First Holdco, with a turnover of 225.9 billion units valued at N21.0 billion, Guinea Insurance sold 53.4 million units for N45.2 million, Zenith Bank traded 41.5 million units worth N4.7 billion, Access Holdings exchanged 29.1 million units valued at N720.6 million, and UBA exchanged 27.5 million units for N1.2 billion.
