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Monday, March 7, 2011

[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

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