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Originally Posted by HungLikeJesus
I imagine that people that have worked for their money, and that have invested, and that are now retired, are living off of the income from those investments, which would be taxed as capital gains, wouldn't it?
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No, not strictly speaking. The simplest definition of capital gains is the difference between the cost of something you buy and then sell. If you sell it for more than you paid for it when you bought it, that difference is a capital gain. Stocks are the most common kind of asset that produces capital gains or losses. What you describe is more likely to be dividend income. This is from irs.gov:
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Dividends are distributions of property (which can include money, stock of another corporation or other property) a corporation pays you because you own stock in that corporation. You also may receive dividends through a partnership, an estate, a trust, a subchapter S corporation or from an association that is taxable as a corporation. Most dividends are paid in cash. A shareholder of a corporation may be deemed to receive a dividend if the corporation pays the debt of its shareholder, the shareholder receives services from the corporation, or the shareholder is allowed the use of the corporation's property. A shareholder may also receive distributions such as additional stock or stock rights in the distributing corporation; such distributions may or may not qualify as dividends.
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This sounds like what the income from retirement nest egg would be. Dividends are taxed at the same rate as capital gains.
GENERALLY SPEAKING: If you make your money from your labor your taxes range from 10 to 35%. If you make your money from your money, your taxes range from 0 to 15%. This shows the strong bias in our tax system to put more of the tax burden on wage earners than on capital possessors.