[Individual]Ordinary Dividends and Qualified Dividends (Mar-04-2011, 46 days left)

Ordinary dividends are ordinary income, rather than capital gains. You can assume that any dividend you receive on common or preferred stock is an ordinary dividend unless the paying corporation tells you otherwise. It is reported in 1099-DIV box 1a.

Qualified Dividends: it is reported in 1099-DIV box 1b

It is subject to net capital gain.

Tax rate for Qualified dividends
15%	If the regular tax rate is 25% or higher
0%	If the regular tax rate is lower than 25%

All the following requirements must be met to be qualified for this special treatment:

• The dividends must have been paid by a U.S. corporation or a qualified foreign corporation.
• The dividends are not of the type listed :

--capital gain distributions

--Dividends paid on deposits with mutual savings banks, cooperative banks, credit unions, U.S. building and loan associations, U.S. savings and loan associations, federal savings and loan associations, and similar financial institutions.

--Dividends from a corporation that is a tax-exempt organization or farmer's cooperative

--Dividends paid by a corporation on employer securities held on the date of record by an employee stock ownership olan (ESOP)

--Dividends on any share of stock to the extent you are obligated to make related payments for positions in substantially similar or related property

--Payments in lieu of dividends, but only if you know the payment are not qualified dividends

--Payments shown in Form 1099-DIV, box 1b to the extent you know it's not qualified dividends

• You meet the holding period requirement:

Common Stock	more than 60 days during the 121-day period that begins 60 days before the ex-dividend date ( the first date following the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment.)
Preferred stock	More than 90 days during the 181 days

PSQ

Source: http://www.irs.gov

[Individual]Original Issue Discount --OID (Mar-03-2011, 47 days left)

OID is a form of interest.

You include OID in your income as it accrues over the term of the debt instrument, whether or not your receive any payments from the issuer.

OID is the difference between the issue price and face value.

Certificates of Deposit (CDs)

You should this rule to CDs, if it has more than 1 year maturity. You must include in income each year a part of the total interest due and report it in the same manner as other OID.

Besides CDs, the following are also fit for OID rule:

• Time deposits,

• Bonus plans,
• Savings certificates,
• Deferred income certificates,
• Bonus savings certificates, and
• Growth savings certificates

Exceptions to reporting OID:

The OID rules do not apply to the following debt instruments:

• Tax-exempt obligation.

• U.S. savings bonds

• Short-term debt instrument.

• Obligation issued by an individual before Mar-2-1984

• Loans between individuals, if all of the following are true:

--the lender is not in the business of lending money

--the amount of the loan + outstanding prior loans <= 10,000

--Avoiding federal tax is not one of the principal purposes of the loan

PSQ

Source: http://www.irs.gov

[Individual]U.S. Treasury Bills, Notes and Bonds (Mar-03-2011, 47 days left)

Interest income from Treasury bills, notes and bonds is subject to federal income tax but is exempt from all state and local income taxes. It is reported in Form 1099-INT Box 3.

Treasury Bills

These bills generally have a 4-week, 13-week, 26-week, or 52-week maturity period.

They are issued at a discount. The difference between purchase price and face value is the interest income which is included in your income when you get the payment at maturity.

Treasury notes and bonds

Treasury notes have maturity period more than 1 year, ranging up to 10 years.

Treasury bonds have maturity period more than 10 years.

Generally, you report the interest for the year paid.

Bonds Sold between interest dates

Sell a bond	Part of sales price represents interest accrued to the date of sale. You must include that part of the sales price as interest income for the year of sale.
Buy a bond	Part of purchase price represents interest accrued before the date of purchase, you must treat this part as a return of your capital investment, rather than interest income. You should reduce your basis in the bond.

PSQ

Source: http://www.irs.gov

[Individual]Taxable Interest Income 3 (Mar-02-2011, 48 days left)

1. U.S. obligations:

Interest on U.S. obligations, such as U.S. Treasury bills, notes, and bonds, issued by any agency or instrumentality of the United States is taxable for federal income tax purposes.

2. Interest on tax refunds: taxable

3. Interest on condemnation award

Interest to compensate for delay in payment of an award is taxable.

4. Installment sale payments

Interest payable with the deferred payments is taxable when you receive it.

5. Interest on annuity contract

Accumulated interest on an annuity contract you sell before its maturity date is taxable.

6. Usurious interest

It's interest charged at an illegal rate. Usually it is taxable as interest.

7. Interest income on frozen deposits

You can exclude the interest on frozen deposits. The amount of interest you must exclude is the interest on frozen deposits minus the sum of :

--the net amount you withdrew from these deposits during the year,

--the amount you could have withdrawn as of the end of the year.

PSQ

Source: http://www.irs.gov

[Individual]Taxable Interest Income 2 (Mar-01-2011, 49 days left)

1. Money borrowed to invest in certificate of deposit

The interest paid for the loan and the interest earned from CD are totally two separate items.

You must report the total interest you earn on the CD in your income. You may be deduct the interest you pay as investment interest, up to the amount of your net investment income.

2. Gift for opening account

If you receive non-cash gift or services for making deposits or for opening an account in a savings institution, you may report the value as interest.

For deposits of less than 5,000, gifts or services valued at more than 10 must be reported as interest.

For deposits of more than 5,000, gifts or services valued at more than 20 must be reported as interest.

3. Interest on insurance dividends

If it is left on deposit with an insurance company and can be withdrawn annually, it is taxable when it is credited to your account.

If you can withdraw it only on the anniversary date of the policy, the interest is taxable in the year that date occurs.

4. Prepaid insurance premiums

Any increase in the value of prepaid insurance premiums, advance premiums, or premium deposit funds is interest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw.

PSQ

Source: http://www.irs.gov

[Individual]Taxable Interest Income 1 (Feb-28-2011, 50 days left)

1. Dividends that are actually interest

Certain distributions commonly called dividends are actually interest, such as interest on deposits or on share accounts in : Cooperative banks Credit unions Domestic building and loan associations Domestic savings and loan associations Federal savings and loan associations Mutual saving banks

Generally, it will be shown as interest income on Form 1099-INT

2. Money market funds

It pay dividends and is offered by nonbank financial institutions, such as mutual funds and stock brokerage houses.

You consider it as dividend, not as interest.

3. Certificates of deposit and other deferred interest income

Interest may be paid at fixed intervals of 1 year or less during the term of account, or the CD mature in 1 year or less and will get interest at maturity day. You generally include this interest in your income when you actually receive it or are entitled to receive it without penalty. Even it happens to be a penalty for early-withdraw, you still keep the original amount as your interest income, then treat the penalty separately. (Pub 550)

If interest is deferred for more than 1 year, see Original Issue Discount (OID).

PSQ

Source: http://www.irs.gov

[Individual]Interest Income -- General (Feb-27-2011, 51 days left)

There are several types of interest income, not only the interest earned on your saving account, but also some others from your estate, trust or property, etc.

Investment income of certain children	Taxed at the parent's tax rate: Investment income > 1,900, Form 8615 is required Investment income <> May choose to include child's interest and dividends on the parent's return: Form 8814.
Beneficiary of an estate or trust	Generally taxable income You should receive Form 1041 schedule K-1
Joint accounts	Joint saving account or bond, joint tenants, etc. Each share of any interest income is determined by local law
Income from property given to a child	Taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent.
Savings account with parent as trustee	Taxable to the child if, under the law of the state in which the child resides, both of the following are true: The savings account legally belongs to the child The parents are not legally permitted to use any of the funds to support the child
Exempt-interest dividends	Nontaxable income. Generally show in box 8 of 1099-INT If it is paid from specified private activity bonds may be subject to the alternative minimum tax.
Interest on VA dividends	Interest on insurance dividends left on deposit with the department of Veterans Affairs (VA) is nontaxable.
Individual Retirement arrangements (IRA)	Interest on a Roth IRA is nontaxable. Interest on a traditional IRA is tax deferred. You include it as your income when you make withdrawals from the IRA

2 Major forms you should received for your interest income:

Form 1099-INT

Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest.

Interest Not reported on Form 1099-INT

You still need to report it. For example, distributive shares of interest from partnerships or S corp. it is reported on Schedule K-1 (Form 1065) or Schedule K-1 (Form 1120S)

Form 1099-OID (Original Issue Discount)

PSQ

Source: http://www.irs.gov