According to Parrish (2014) “Capital gains are not something you factor in after deciding your business strategy … they are something that should be part of your business strategy from the very beginning.” Capital gains are profits reflecting increased values of stocks, bonds, investment real estate and other capital assets. The higher someone’s income is the gains are subjected to the top marginal federal tax bracket.
Capital gains compare to ordinary income which is guaranteed like salaries involve risk and they are not guaranteed. The pros of capital gains are the additional income the individual can earn and the cons are the possible high taxation of these gains. For the government the introduction of the tax widens the tax base for raising government revenue. In an effort to
increase revenues, widening the tax base is better than raising the level of taxes, usually resulting in less tax burden especially on lower income earners however the high earning individuals tax rates would be substantially higher. As a disadvantage of the capital gains taxation is that the capital assets owner may delay selling because the impact of the tax has to be considered especially for the stock market, this affects liquidity- the turn-around of shares and eventually even in the property market this can create a false shortage that pushes the prices up.
Reference
http://www.forbes.com/sites/steveparrish/2014/03/24/zero-to-60-what-business-owners-need-to-know-about-capital-gains/
Seaquist, G. (2012). Business law for managers. San Diego, CA: Bridgepoint Education, Inc