What Capital Gains and Losses Mean for a Business

Gains and losses are either short-term or long-term

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A business can gain or lose money in two ways. It can make a profit from its sales activities, or it might lose money by spending more than it brings in. It can also gain or lose money through its investments or the sale of assets—items of value that the business owns.

Capital gains or losses are taxed differently. Profits are typically taxed as ordinary income at the "regular" tax rate. Gains or losses on investments or the sale of assets are taxed as capital gains or losses, but it can depend on the type of business.

Key Takeways

  • Capital gains and losses occur when your business sells an asset for more or less than you bought it for.
  • The amount of time you owned the asset matters, and the capital gains and losses are divided into short-term and long-term categories.
  • When it comes tax time, short-term and long-term capital gains or losses are taxed differently.

Capital Gains and Capital Losses

Almost everything a business owns and uses is a capital asset. If the selling price of an asset is higher than the owner's basis in that asset, the result is a capital gain. If the selling price is less than the basis, the result is a capital loss.


The basis is generally the purchase price of the asset plus any capital improvements and costs of sale.

Capital gains and losses are also experienced when a business writes off an asset, taking it off its balance sheet. It might be the case with accounts receivable when a debt is owed to the business but is unlikely ever to be paid for one reason or another.

Long-Term vs. Short-Term

Capital gains and losses come in two forms: long-term and short-term. Short-term gains or losses are those on assets that are held for a year or less before being sold. Long-term capital gains and losses resulting from the sale of assets that were held or owned for more than a year before being sold.

Long-term gains are subject to tax rates up to 28% for sole proprietors and investors. The rate depends on your overall income—the more income he has, the higher the rate—and what exactly you're selling. This tax rate also only kicks in if you had more capital gains for the year than capital losses and only applies to the surplus.

How Capital Gains or Losses Affect Business Owners

Capital gains and losses impact businesses owners in two ways—through the sale of stock and through the sale of business property.

Individual shareholders or business owners who sell their capital shares or owner's equity in a business also incur capital gains or capital losses from those sales.


If the company is a "qualified small business" and the stock meets certain criteria, it may receive different treatment.

If you have gains or losses from selling business property like furniture, equipment, and machinery, they are ordinary gains.

Frequently Asked Questions (FAQs)

Do businesses pay capital gains tax?

Businesses do pay income tax on profits and must do so before issuing dividends to shareholders.

What are capital gains and losses examples?

An example of a capital loss for a company would be if the business purchased equipment for $300,000 and then sold it two years later for $250,000. The $50,000 difference would be considered a long-term capital loss.

If a business bought a building for $800,000 and sold it six months later for $1,500,000, the difference would be a $700,000 short-term capital gain.

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  1. IRS. "Topic No. 703 Basis of Assets."

  2. IRS. "Topic No. 409 Capital Gains and Losses."

  3. Office of the Law Revision Counsel of the United States House of Representatives. "26 USC 1244: Losses on Small Business Stock."

  4. Tax Foundation. "Business Capital Gains And Dividends Taxes."

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