Gains refer to an increase in value or profit.
What Are Gains?
Gains refer to a value appreciation. Also called profits, gains emanate from selling an asset, either physical or digital, at a higher price than its initial buying price. For example, if a trader bought Bitcoin at $10K and sold it for $18K, he has an $8K profit. However, the real gain is calculated by considering the cost of maintaining the asset.
For instance, during trading, the investor incurred a $1 transaction fee, then the real gain is less the transaction fees. Other factors like physical property, maintenance costs, agent’s fees, and other factors eat into the profits made. On financial books, gains occupy the credit column.
Apart from having realized profits, gains can also be unrealized. Unrealized gains occur when an asset’s price appreciates, but the investor doesn’t sell it during this stage. Often, unrealized profits in the cryptocurrency sector, for example, are caused by a highly volatile market where prices can oscillate between two price extremes within a very short time.
Gains occur in different shapes. There are gross and net profits. Gross profits occur before subtracting the expenses and other overheads incurred between an asset’s purchase and selling date. On the other hand, net yields are the final amount after factoring in the fees. In most jurisdictions, gains are subject to taxes.
However, the tax due primarily depends on the traded asset. Apart from the United States and a few other countries, cryptocurrency gains remain largely untaxed due to the unclear regulatory atmosphere across the globe. In most jurisdictions, tax on Bitcoin gains follows the same formulae applied to capital gains.