What does "capital gains tax" refer to?

"Capital gains tax" refers specifically to a tax imposed on the profit realized from the sale of a non-inventory asset. This includes assets like stocks, bonds, real estate, and other investments. When an individual sells such an asset for more than its purchase price, the profit incurred is categorized as a capital gain and is subject to taxation.

This type of tax can be classified into two categories: short-term capital gains, which apply to assets held for one year or less, and long-term capital gains, which apply to assets held for more than one year, typically at different rates. Understanding capital gains tax is crucial for wealth management advisors because they help clients navigate the implications of asset sales and plan accordingly to minimize tax liability.

The other options pertain to different types of taxes. For instance, income tax is levied on wages and salaries, property tax relates to real estate ownership based on value, and tax on dividends is charged on the earnings distributed to shareholders. Each of these taxes serves a different purpose and cannot be directly associated with the concept of capital gains.