[cynicalkane]

I am not a tax lawyer, but my understanding is that capital gains only count as such if you've held the asset for at least a few years.

By the way, in the first case, your outlays are tax-deductible.

(edit: I'm not an expert, so downvoters, please explain your disagreement.)

[_delirium]

The outlays being tax-deductible is the same in both cases: you only pay tax on the gains between what you put in and got out, not on the total revenue. If you spend $100k on art supplies and sell $110k in paintings, you pay taxes on the $10k net profit. Same as if you bought a bond for $100k and sold it for $110k; you only pay taxes on the $10k net gain.

But in the second case, you're taxed at a lower rate, so the tax code appears to want to discourage you from investing your capital in your own work. If you ever find yourself in a situation where you could make a 10% return on capital by putting that capital to work yourself, or could make the same 10% by putting that capital into a passive investment, the tax code promotes the 2nd option.