Difference between Capital Gains and Income

Income and capital gains are two financial benefits at an individual or corporation’s disposal after profits are realized. However, their working is different and holds diverse implications for the parties involved.

Income is basically the money obtained by someone through wages, salaries, commissions, bonuses and other compensation. This money will hold greater importance for a person on a basic or individual level. For instance, you work for a company and in return you are paid a salary. There is a simple give and take method involved. However, capital gains are simply the difference between the purchase price and the selling price, with excess money termed as gains.

These gains can be realized when you invest in securities, stocks, real estate etc. You may not actually work for the company or an organization to realize financial benefits. However, you will need to invest some money from your own pocket in order to reap the gains later on. Income on other hand can be generated from the work you deliver.

Capital gains furthermore differ in terms of taxes. They can be categorized as either short-term or long term gains. The former refers to the investment made within a year, while the latter is held for more than 12 months. For short-term gains, you are entitled to pay larger amounts in taxes and may be taxed at the same rate as your income. However, longer term gains will be taxed, depending on the income bracket you fall into.

Moreover, you may not need to pay taxes until a gain is realized. For instance, if you have invested in stocks, you are not obligated to pay taxes until you sell them. However, in case of income, you will be taxed on a yearly basis, depending on the income bracket you belong to.

Furthermore, capital gains is a notion applied to resources owned by you (your home etc). However, income may be generated from various avenues, regardless of the fact whether you own the item or not.