TLDR:
Capital gains are profits realized from the sale of assets (stocks, real estate, businesses) when the sale price exceeds the original purchase price, subject to capital gains tax.
Short-Term vs. Long-Term Capital Gains
The tax treatment of capital gains varies significantly based on the holding period. In the United States, gains from assets held longer than one year are taxed at preferential long-term capital gains rates (0%, 15%, or 20% depending on income), while short-term gains are taxed as ordinary income (up to 37%). This creates powerful incentives for long-term investing and is a key reason why founders with vesting schedules and employees with stock options should carefully plan the timing of their equity transactions to maximize after-tax returns.
QSBS Exclusion
Qualified Small Business Stock can provide up to 100% federal capital gains tax exclusion on first $10M of gains for stock held over 5 years.