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If it is left on deposit with an insurance company and can be withdrawn annually, it is taxable when it is credited to your account.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

[Individual]Retirement Plan Contributions (Feb-26-2011, 52 days left)

Qualified retirement plan	Nontaxable Exception: the cost of life insurance coverage (Group-Term Life Insurance)
Nonqualified retirement plan	Taxable Exception: if your interest in the plan is not transferable or is subject to a substantial risk of forfeiture, you don't need to include the value of your interest until the if condition doesn't exist.

Elective deferrals:

You can choose to set aside part of your compensation to a retirement fund. This amount is called an elected deferral which is treated as an employer contribution to a qualified plan, so nontaxable.

Elective Deferral other than a designated Roth Contribution	Nontaxable to income tax at the time contributed Taxable to social security and medicare taxes
A designated Roth Contribution	Employer with Section 401K and 403B can create qualified Roth contribution programs so that you can transfer part or all of your elective deferral to the plan. Designated Roth contributions are treated as elective deferral, except that they are included in income.

Examples of elective deferrals:

1. cash or deferred arrangements (401K)

2. the thrift savings plan for federal employees

3. Salary reduction simplified employee pension plans (SARSEP)

4. Saving incentive match plans for employees (SIMPLE plan)

5. Tax-sheltered annuity plans (403B)

6. Section 501C18-D plans

7. Section 457 plans

Limits on deferrals:

Up to 16,500 of contributions to the plans listed in 1-3 and 5 above.

Up to 11,500 for 4 above

Lesser of 7,000 or 25% of your compensation for 6 above

Lesser of your includible compensation or 16,500 for 7 above

Excess deferrals:

The excess generally must be included in your income for that year, unless you have an excess deferral of a designated Roth contribution.

Catch-up contributions: when you are age 50 or older by the end of your tax year.

More details in Pub 575.

PSQ

Source: http://www.irs.gov

[Individual]Restricted Property and Stock Options (Feb-25-2011, 53 days left)

If you received a property for your services, you should include its fair market value in your income.

If you received restricted property (such as stock which has certain restrictions that affect its value), you do not include it in your income until it has substantially vested. ( you can choose to include in your income once the property is transferred to you.)

Dividends received on restricted stock before you include them in your income: treated as compensation, not as dividend income. It should be included in your W-2.

Dividends received on restricted stock after you choose to include in your income when transfer: treated as dividends.

Stock Options:

Nonstatutory Option	Usually will have income when you receive the option, exercise the option, or sell or dispose of stock option
Statutory Option	Income happens when you sell or exchange your stock.

See Pub 525 for more details.

PSQ

Source: http://www.irs.gov

[Individual]Transportation (Feb-24-2011, 54 days left)

You can exclude transportation benefit up to certain limits.

First , you need to identify whether it's a qualified transportation fringe benefit, all of the following applye:

• Transportation in a commuter highway vehicle between your home and work place.

>6 adults (not include driver), employee occupy half of seating capacity

• A transit pass.

Any pass, token, farecard, voucher

• Qualified parking

Parking near to employer's place of business, or near to mass transit, etc.

• Qualified bicycle commuting reimbursement

The reimbursement is based on the number of qualified months. It can be for expenses for the purchase of a bicycle and bicycle improvements, repair, and storage.

A bona fide cash reimbursement is excludable. However, cash reimbursement for a transit pass is excludable only if a voucher or similar item is not readily available for direct distribution to you.

Second, there is a limit of 230/month.

For qualified parking, you may have higher limit. For bicycle reimburse, it is up to 20 * number of qualified months.

PSQ

Source: http://www.irs.gov

[Individual]Don't forget to report your tips (Feb-23-2011, 55 days left)

There are three categories for tip income.

First, you have reported tips to your employer. It is included in W-2 Box 1.

Second, your employer allocated tips to you. It is included in W-2 Box 8.

Last, you have not reported tips to your employer and the tips are not included in allocated tips.

If either of following condition applies, you must file Form 4137 to report Social Security and Medicare Tax on Unreported Tip Income:

• You received cash and charge tips of 20 or more in a calendar month and did not report all of those tips to your employer. The $20 rule applies separately to the tips while you worked for more than one employer and not to the total you received.
• You have allocated tips in your W-2 Form. If your actual tips is not agreed with the number in your W-2, please your records that show the actual amount of tips you received.

After you figure out the total taxable tip income, you should include this amount into Line 7 of Form 1040.

See Pub 531 for more details

PSQ

Source: http://www.irs.gov