capital gain tax vs. income tax

[sleepybird]

Sorry, this is probably a stupid question, but what’s the difference between capital gain tax and income tax? When you sell a stock that has appreciated, do you pay capital gain tax or income tax upon sale? If you hold on to the appreciated stock and not selling it, do you still pay capital gain tax? Thanks.

 

[cfafrank]

Sorry, this is probably a stupid answer but I think you pay income tax when you receive interest on the capital you have invested, for example, bond coupon, dividend and rent. And you pay capital gain tax when the capital you invested has appreciated, no matter it is realized or not, if you pay tax in North America.

 

[McLeod81]

Come on man, capital gains taxes are taxes paid on any gain in capital (appreciation). You pay the CG when you sell the asset. CG taxes can also be distributed by mutual funds etc when they liquidate holdings and pass the “gains” through to shareholders. Income taxes are paid on any income received (interest, dividends). Neither apply to securities held in tax exempt accounts (except when you take a distribution).

 

[cfafrank]

McLeod81 is right, you pay capital gain tax when you sell your asset.

 

[sleepybird]

thanks. I asked that question because I was confused because on page 94 of Book 2 Schweser Note: tax efficiency for tax deferred pensions: withdrawals are subject to both income and capital gains taxes. Why you’re paying capital gains taxes when you’re just withdrawing from 401K, you’re not selling anything. I probably understand the income tax part.