Taxable Interest

The IRS taxes the majority of  a taxpayer’s interest income. All interest income earned from these common sources is taxed: savings accounts, personal loans, certificates of deposits, and annuity contracts. Even less-common sources like tax refunds and below-market loans (“forgiven interest” is considered taxable interest income to the forgiving party) produce taxable interest income.

Regardless of the interest source, each interest-paying bank, savings and loan, or financial institution will usually send the taxpayer a Form 1099-INT, which lists the amount of interest earned from that particular source. Taxpayers should be sure to subtract any fees paid or early withdraws he/she made throughout the year to avoid unnecessary taxing on those items. If the taxpayer’s yearly interest income exceeds $1,500, he/she will need to complete and attach Schedule B to the Form 1040. For more detailed interest income information, consult Publication 550.

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