In 2016, Merced had a long-term capital gain of $20,000. In 2019, Merced had a long-term capital gain of $10,000.  These are the only capital transactions that Merced has had in the five years preceding 2020.  Explain to the CEO of Merced what they can expect in terms of their overall tax liability for 2020. Also, explain any future planning opportunities that might arise regarding these capital transactions.

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.