A capital gain is the profit made from selling an asset. Simply because an asset is sold does not mean that the investor has a capital gain. The asset must be sold for more than it originally cost including any fees and commissions that accrued from the buying and selling of the asset. Often accountants may contact the investor to discuss how long the investor will hold onto the asset because assets that are held for more than a year prior to being sold are taxed at a discounted rate.

Another facet of capital gains that should be considered is the type of asset it is. For instance, profits from collectibles like stamps and baseball cards are taxed at a higher rate than profits from the sale of your principle residence that you have lived in for more than two years.

Taxes are the main reason investors strive to understand what a capital gain is. If a capital gain will skew the client’s tax liability, accountants will often look for tax-exempt places to put your capital gains. Unfortunately, once you realize a profit on any stocks from your portfolio, the government wants its cut. There are times when you are not taxed on a capital gain. One such circumstance is if your Roth IRA or 401K account buys and sells individual stocks. In this case, you are only taxed when you withdraw that money from the retirement account since the account is tax-deferred.

Another strategy used by investors to offset capital gains taxes is to donate a portion of the profit to a charity. However this strategy is only useful if the donation is made in the same year that the stock is sold. In fact, any strategy that uses losses to offset gains is only constructive if both occur in the same tax year.

Capital gains taxes can range from anywhere between 0 and 35%. With that much of a range, paying the least amount of taxes is high on every investor’s list. It is important to note that the tax is set to change in 2010.

Software is available for the investor who wants to keep track of her profits and losses. Even those investors who leave everything to their accountants need to keep some data on hand. Most importantly the accountant needs to know when the asset was bought and sold, and he needs to know the prices at which the asset was bought and sold. Other important figures to keep are any fees, and commissions arising out of buying and selling the item. If there is no profit after taking the fees and commissions into account, then you have a capital loss which can help offset any gains you may have. Deciphering this aspect of the tax code can be a little tricky, but with proper planning you can get the most from your investments.

S. Crawford is a legal researcher and avid writer. Other articles by this writer can be found at http://www.squidoo.com/what_do_stockbrokers_do