What is Capital Income
Capital income refers to the income gained from the capital invested in the company. Capital is the money that is invested in starting a business. Normally, this capital income is used in ploughing back of profits and expansion of the company. As the name suggests, there is a unique feature that these capital incomes provide, hence the name capital. The income from the capital assets is guaranteed on a yearly basis until you own the asset. It is also known as capital income as it is received once in a year. How you can differentiate between capital income and regular income? Well, the difference is similar as a difference between earned income and unearned income. There are various types of capital incomes, which can be gained by a person. This article will discuss about these capital income gains.
- Income from sale of assets – Capital assets is a huge way of acquiring capital incomes. This can be explained with the help of an example. If you have purchased a piece of land for $10000, it is an obvious fact that the value of land appreciates year by year. Therefore, when you intend to sell the same piece of land after a span of 5 years, the value would have doubled and in some cases would have tripled. Thus, the amount gained through the sale of land is a capital gain. This amount can be calculated as the difference between the amount acquired by sale and the amount paid by you during the time of purchase.
- Investment in stocks and securities – A stock or a security is known as a capital asset of a business or a person. Thus, the gains and incomes from these securities can be termed as capital incomes. The dividend, which you receive on the stock investment, is considered as a capital income. Similarly, when you sell these securities at a higher price than the face value, this gain is also known as capital income.
- There are certain capital incomes, which are intangible in nature. These gains and incomes cannot be seen or touched but can be felt. For example, the goodwill of a company is a capital gain that is enjoyed solely by the owners. There is a share of goodwill that each of the directors of the company get for being a part of the company. The other intangible capital gains are copyrights, patents, trademarks and intellectual property among others.
There are certain tax applications to these capital incomes and gains as per government rules and regulations. However, the rate of taxation will vary from that of income and property taxes.