When do investors typically pay taxes on capital gains from owning shares?

Investors typically pay taxes on capital gains from owning shares when the shares are sold. This taxation principle is based on the realization concept in accounting and finance, which states that capital gains are only recognized for tax purposes when an investment has been sold and the investor has locked in the profit. Until the sale occurs, any increase in the value of the shares is considered an unrealized gain and is not subject to taxation.

This approach incentivizes investors to hold onto their investments, as they can defer paying taxes until they choose to sell. This means that even if the value of the shares appreciates significantly, the investor won't incur a tax liability until the shares are liquidated.

In contrast, other options do not align with the standard tax treatment of capital gains. For instance, taxes are not assessed annually based on the increase in share price or quarterly based on dividends received, nor are capital gains taxed simply because they are held in a tax-advantaged retirement account, where taxes can be deferred or even avoided altogether depending on the account type.