What is one major tax difference between income and capital gains?

In personal finance, understanding the tax implications of different types of income is crucial. One significant difference is that income from wages or salaries is generally subject to a progressive tax system, meaning rates can vary widely based on total earnings. In contrast, capital gains—profits from the sale of assets like stocks or real estate—are typically taxed at a different rate.

The option indicating that income is taxed at 15% while capital gains are taxed at a 10% to 15% range accurately captures the essence of how these two types of earnings are treated in the tax system. Capital gains rates can indeed fluctuate, often being lower than ordinary income tax rates, encouraging investment and saving. Specifically, for long-term capital gains, the rates may fall into the lower brackets, such as 0%, 15%, or even 20%, based on the individual's overall income level.

This distinction emphasizes the importance of strategic financial planning; individuals may opt to invest in assets that yield capital gains for the potential of lower tax burdens compared to regular income. Understanding these different rates allows individuals to make informed decisions about earning and reporting their income optimally.