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Current Year Tax Map
Publication 550
taxmap/pubs/p550-001.htm#en_us_publink10009828

Chapter 1
Investment Income(p2)


taxmap/pubs/p550-001.htm#TXMP1c6daacb

Useful items

You may want to see:


Publication
 525 Taxable and Nontaxable Income
 537 Installment Sales
 590 Individual Retirement Arrangements (IRAs)
 925 Passive Activity and At-Risk Rules
 1212 Guide to Original Issue Discount (OID) Instruments
Form (and Instructions)
 Schedule B (Form 1040A or 1040): Interest and Ordinary Dividends
 Schedule D (Form 1040): Capital Gains and Losses
 1040: U.S. Individual Income Tax Return
 1040A: U.S. Individual Income Tax Return
 1040EZ: Income Tax Return for Single and Joint Filers With No Dependents
 1099: General Instructions for Certain Information Returns
 2439: Notice to Shareholder of Undistributed Long-Term Capital Gains
 3115 : Application for Change in Accounting Method
 6251 : Alternative Minimum Tax — Individuals
 8582 : Passive Activity Loss Limitations
 8615 : Tax for Certain Children Who Have Investment Income of More Than $1,900
 8814 : Parents' Election To Report Child's Interest and Dividends
 8815 : Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989
 8818 : Optional Form To Record Redemption of Series EE and I U.S. Savings Bonds Issued After 1989
 8949 : Sales and Other Dispositions of Capital Assets
See Ordering forms and publications, earlier, for information about getting these publications and forms.
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General Information(p3)

rule
A few items of general interest are covered here.
Where Refund
Recordkeeping. You should keep a list showing sources and investment income amounts you receive during the year. Also keep the forms you receive showing your investment income (Forms 1099-INT, Interest Income, and 1099-DIV, Dividends and Distributions, for example) as an important part of your records.
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Tax on investment income of certain children.(p3)

rule
Part of a child's 2012 investment income may be taxed at the parent's tax rate. This may happen if all of the following are true.
  1. The child had more than $1,900 of investment income.
  2. The child is required to file a tax return.
  3. The child was:
    1. Under age 18 at the end of 2012,
    2. Age 18 at the end of 2012 and did not have earned income that was more than half of the child's support, or
    3. A full-time student over age 18 and under age 24 at the end of 2012 and did not have earned income that was more than half of the child's support.
  4. At least one of the child's parents was alive at the end of 2012.
  5. The child does not file a joint return for 2012.
A child born on January 1, 1995, is considered to be age 18 at the end of 2012; a child born on January 1, 1994, is considered to be age 19 at the end of 2012; a child born on January 1, 1989, is considered to be age 24 at the end of 2012.
If all of these statements are true, Form 8615 must be completed and attached to the child's tax return. If any of these statements is not true, Form 8615 is not required and the child's income is taxed at his or her own tax rate.
However, the parent can choose to include the child's interest and dividends on the parent's return if certain requirements are met. Use Form 8814 for this purpose.
For more information about the tax on investment income of children and the parents' election, see Publication 929, Tax Rules for Children and Dependents.
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Beneficiary of an estate or trust.(p3)

rule
Interest, dividends, and other investment income you receive as a beneficiary of an estate or trust is generally taxable income. You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc., from the fiduciary. Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040.
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Social security number (SSN).(p3)

rule
You must give your name and SSN to any person required by federal tax law to make a return, statement, or other document that relates to you. This includes payers of interest and dividends.
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SSN for joint account.(p3)
If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. (For information on who owns the funds in a joint account, see Joint accounts, later.) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account. This is because only one name and SSN can be shown on Form 1099.
These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN.
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Custodian account for your child.(p3)
If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. For example, you must give your child's SSN to the payer of dividends on stock owned by your child, even though the dividends are paid to you as custodian.
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Penalty for failure to supply SSN.(p3)
You will be subject to a penalty if, when required, you fail to: The penalty is $50 for each failure up to a maximum penalty of $100,000 for any calendar year.
You will not be subject to this penalty if you can show that your failure to provide the SSN was due to reasonable cause and not to willful neglect.
If you fail to supply an SSN, you may also be subject to backup withholding.
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Backup withholding.(p3)

rule
Your investment income is generally not subject to regular withholding. However, it may be subject to backup withholding to ensure that income tax is collected on the income. Under backup withholding, the bank, broker, or other payer of interest, original issue discount (OID), dividends, cash patronage dividends, or royalties must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate.
Backup withholding applies if:
  1. You do not give the payer your identification number (either a social security number or an employer identification number) in the required manner,
  2. The IRS notifies the payer that you gave an incorrect identification number,
  3. The IRS notifies the payer that you are subject to backup withholding on interest or dividends because you have underreported interest or dividends on your income tax return, or
  4. You are required, but fail, to certify that you are not subject to backup withholding for the reason described in (3).
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Certification.(p3)
For new accounts paying interest or dividends, you must certify under penalties of perjury that your SSN is correct and that you are not subject to backup withholding. Your payer will give you a Form W-9, Request for Taxpayer Identification Number and Certification, or similar form, to make this certification. If you fail to make this certification, backup withholding may begin immediately on your new account or investment.
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Underreported interest and dividends.(p3)
You will be considered to have underreported your interest and dividends if the IRS has determined for a tax year that:
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How to stop backup withholding due to underreporting.(p4)
If you have been notified that you underreported interest or dividends, you can request a determination from the IRS to prevent backup withholding from starting or to stop backup withholding once it has begun. You must show that at least one of the following situations applies.
If the IRS determines that backup withholding should stop, it will provide you with a certification and will notify the payers who were sent notices earlier.
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How to stop backup withholding due to an incorrect identification number.(p4)
If you have been notified by a payer that you are subject to backup withholding because you have provided an incorrect SSN or employer identification number, you can stop it by following the instructions the payer gives you.
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Reporting backup withholding.(p4)
If backup withholding is deducted from your interest or dividend income or other reportable payment, the bank or other business must give you an information return for the year (for example, a Form 1099-INT) indicating the amount withheld. The information return will show any backup withholding as "Federal income tax withheld."
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Nonresident aliens.(p4)
Generally, payments made to nonresident aliens are not subject to backup withholding. You can use Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, to certify exempt status. However, this does not exempt you from the 30% (or lower treaty) withholding rate that may apply to your investment income. For information on the 30% rate, see Publication 519, U.S. Tax Guide for Aliens.
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Penalties.(p4)
There are civil and criminal penalties for giving false information to avoid backup withholding. The civil penalty is $500. The criminal penalty, upon conviction, is a fine of up to $1,000, or imprisonment of up to 1 year, or both.
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Where to report investment income.(p4)

rule
Table 1-1 gives an overview of the forms and schedules to use to report some common types of investment income. But see the rest of this publication for detailed information about reporting investment income.
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Joint accounts.(p4)

rule
If two or more persons hold property (such as a savings account, bond, or stock) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest or dividends from the property is determined by local law.
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Community property states.(p4)

rule
If you are married and receive a distribution that is community income, one-half of the distribution is generally considered to be received by each spouse. If you file separate returns, you must each report one-half of any taxable distribution. See Publication 555, Community Property, for more information on community income.
If the distribution is not considered community property under state law and you and your spouse file separate returns, each of you must report your separate taxable distributions.
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Example.(p4)

You and your husband have a joint money market account. Under state law, half the income from the account belongs to you, and half belongs to your husband. If you file separate returns, you each report half the income.
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Income from property given to a child.(p5)

rule
Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property.
Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation.
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Savings account with parent as trustee.(p5)
Interest income from a savings account opened for a minor child, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true. taxmap/pubs/p550-001.htm#id2011_id2010_w15093r02

Table 1-1. Where To Report Common Types of Investment Income

(For detailed information about reporting investment income, see the rest of this publication, especially How To Report Interest Income and How To Report Dividend Income in chapter 1.)

Type of Income If you file Form 1040, report on ...If you can file Form 1040A, report on ...If you can file Form 1040EZ, report on ...
Tax-exempt interest (Form 1099-INT, box 8)Line 8bLine 8bSpace to the left of line 2 (enter "TEI" and the amount)
Taxable interest that totals $1,500 or lessLine 8a (You may need to file Schedule B as well.)Line 8a (You may need to file Schedule B as well.)Line 2
Taxable interest that totals more than $1,500Line 8a; also use Schedule B, line 1Line 8a; also use Schedule B, line 1 
Savings bond interest you will exclude because of higher education expensesSchedule B; also use Form 8815Schedule B; also use Form 8815 
Ordinary dividends that total $1,500 or lessLine 9a (You may need to file Schedule B as well.)Line 9a (You may need to file Schedule B as well.) 
Ordinary dividends that total more than $1,500Line 9a; also use Schedule B, line 5Line 9a; also use Schedule B, line 5 
Qualified dividends (if you do not have to file Schedule D)Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 2Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 2 
Qualified dividends (if you have to file Schedule D)Line 9b; also use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet, line 2You cannot use Form 1040A


You cannot use Form 1040EZ
Capital gain distributions (if you do not have to file Schedule D)Line 13; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 3Line 10; also use the Qualified Dividends and Capital Gain Tax Worksheet, line 3 
Capital gain distributions (if you have to file Schedule D)Schedule D, line 13; also use the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet  
Section 1250, 1202, or collectibles gain (Form 1099-DIV, box 2b, 2c, or 2d)Form 8949 and Schedule D  
Nondividend distributions (Form 1099-DIV, box 3)generally not reported*  
Undistributed capital gains (Form 2439, boxes 1a - 1d)Schedule D  
Gain or loss from sales of stocks or bonds Line 13; also use Form 8949, Schedule D, and the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet You cannot use Form 1040A 
Gain or loss from exchanges of like-kind investment property Line 13; also use Schedule D, Form 8824, and the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet   
*Report any amounts in excess of your basis in your mutual fund shares on Form 8949. Use Part II if you held the shares more than 1 year. Use Part I if you held your mutual funds shares 1 year or less. For details on Form 8949, see Reporting Capital Gains and Losses in chapter 4, and the Instructions for Form 8949.
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Accuracy-related penalty.(p5)

rule
An accuracy-related penalty of 20% can be charged for underpayments of tax due to negligence or disregard of rules or regulations or substantial understatement of tax. For information on the penalty and any interest that applies, see Penalties in chapter 2.