Tax Preparation - Gross Income and Capital Gains - Assignment Example

The paper "Tax Preparation - Gross Income and Capital Gains" is a perfect example of an assignment on finance and accounting. When selling land, whether raw land, timberland, or farmland, state or federal taxes are triggered and annually following the sale. The sale proceeds are reported on the state and federal tax returns. A capital gain tax is often due in cases where the property is sold for a value that is higher than the purchase price. The capital gains tax is now fifteen percent given the property has been owned more than a year and the taxpayer is in the twenty-five percent tax bracket. With the expansion in the economy, more landowners and farmers are currently being approached by developers looking for permitted development rights that are currently under new planning legislation. However, farmers are only focusing on the possibilities of understanding important sums without considering tax implications as well as tax planning. Tax is important when it comes to selling developed land. The sale of land is a taxable event as a result of various activities that are related to it such as selling expenses, broker’s fees, closing cost, appraisal, surveys, and completion of schedule forms. An individual’s profit may be taxed or not taxed. In cases where the profit is taxed, he or she might be taxed as either ordinary income tax or capital gain tax. Tax deduction might also be included in the cases where an individual sells land at a loss. The internal revenue service considers land and real estate as capital assets (Andreoni, Erard & Feinstein, 2011).

As long as an individual is able to hold his or her land for over a year before selling it, then the profits will be taxed as per the capital gains tax rates. The maximum amount of money that can be taxed in such a situation is fifteen percent. In addition, an individual can eliminate or reduce the capital gains tax liability from the sale of land in cases where the property is sold during the tax year. Under the land contract, an individual may decide whether to pay once or in monthly installments. The taxes will be based on the number of years that the transactions will be made. The internal revenue service is often concerned about the sale of capital assets and often demands its share of profit from the owner of the property. This is often due to the fact that the profit represents a capital gain that is often a subject aimed at separating various forms of taxation under the laws of income tax.