DECA Financial Consulting Complete Practice Exam

A capital gains tax is specifically defined as a tax on the profit realized from the sale of non-inventory assets. When an individual or a business sells an asset—such as real estate, stocks, or other investments—for more than its purchase price, the difference in value is considered a capital gain. This gain is then subject to taxation, which can vary based on how long the asset was held before selling. Short-term capital gains, usually from assets held for less than a year, are typically taxed at higher ordinary income rates, while long-term capital gains benefit from lower tax rates.

Each of the other options addresses different types of taxation that do not align with the definition of capital gains tax. For instance, the tax on inheritance pertains to estate or inheritance taxes, while taxes on dividends are related to income earned from shares of stock. Lastly, a tax levied on total income earned captures various forms of income but does not specifically refer to the profit made from selling an asset, which is what capital gains tax focuses on.