4/12/2013

Do not confuse Form 1099 with Form 1098. Generally, Form 1098 reports expenses taxpayers have paid, not income they have received.

What is Taxable income and what is nontaxable. http://apps.irs.gov/app/vita/content/globalmedia/income_tables_a_b_4012.pdf

Alimony = spousal support

Bond Calculator - http://www.treasurydirect.gov/BC/SBCPrice

IBond - An I Bond earns interest monthly from the first day of the month in the issue date. The interest accrues (is added to the bond) for up to 30 years.

• The interest is compounded semiannually. Twice a year, on the 6th and 12th month anniversaries of the bond's issue date, all interest the bond has earned in previous months is in the bond's new principal value on which interest is earned for the next 6 months. For example, in month 7, interest is earned on the original price plus six months of interest. In month 13, interest is earned on the original price plus 12 months of interest.  (However, values displayed by the Savings Bond Calculator for bonds that are less than 5 years old do not include the latest 3 months of interest. These values reflect the interest penalty.) If you hold the bond for at least five years, when you cash in (redeem) the bond, you receive all the interest the bond has earned plus the amount you paid for the bond.
• You can redeem the bond after 12 months. However, if you redeem the bond before it is five years old, you lose the last three months of interest.

http://treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm#now

 

IBOND - http://beginnersinvest.about.com/od/ibonds/a/intro-to-series-i-savings-bonds.htm

Series I savings bonds are subject to Federal taxes. When you buy your Series I savings bonds, you will owe the Federal government taxes on the interest income you earn during the time you hold the bonds. Due to the fact that the Series I savings bond is a special type of bond known as a "zero coupon" (that is, you won't receive regular checks in the mail; instead, the interest you earn is added back to the bond value and you'll earn interest on your interest), you have a choice between one of two taxation methods: the cash method or the accrual method. The cash method means you will only pay tax on your I bonds when you redeem them (that is, sell them back) to the United States government. If you hold your bond for 20 years, then you won't pay any tax during that period, but you'll owe a tax when you sell out of the investment. If you opt for the accrual method of taxation on your I bonds, you will pay the tax that is due on the interest you earned for the year that was added back to your principal.

Can You Ever Lose Money Investing In I Bonds?

No. Remarkably, I bonds are one of the only investments in the world that the United States Government guarantees. If inflation picks up, you will earn more interest through the inflation adjustment. If the economy enters deflation, the I bonds have a guarantee that they will never go below 0.00% interest per year, meaning your purchasing power would continue to increase even if you weren't earning any interest on your money.

How Long Do You Have to Hold I Bonds?

Series I savings bonds are not intended to be traded, but rather held as long-term investments. You cannot cash them in for at least 12 months after buying each I bond, and if you redeem the bonds before the 5 year anniversary of the purchase date, you will pay a penalty of three months' interest.

How Are I Bonds Are Taxed?

I bonds are exempt from state taxes and local taxes. They are, however, subject to federal taxes but you as an investor have the option to pay taxes on a cash basis or an accrual basis. Under the cash method, you wouldn't pay taxes until you redeemed your bond because even though you had earned the interest income, you hadn't actually seen any of that money. Under the accrual method, you would pay taxes each year on the income you earned that was added back to the value of your I bond. Many investors prefer the cash method of taxation so they don't have to pay taxes out of their own pocket each year, instead using the bond proceeds when they sell the bond to cover any obligations to the government. For more information, read Tax Benefits of Series I Savings Bonds.

 

Using Series I Bonds to Pay for Education Expenses

You won't pay any tax on the interest income you earn from your Series I savings bondsif you use them to pay for qualified educational expenses and you meet the income limits. Just what count as qualified educational expenses? These include:

• Tuition and fees such as required lab courses to a university or college
• Expenses paid for any course that is required as a part of your degree program or certificate-granting program.
• The cost of books or room and board do not count as qualified expenses.
• The expenses must be incurred on behalf of you, your spouse, or a dependent for whom you claim an exemption on your taxes.

There are several other conditions for paying no taxes on your Series I savings bonds.

• The I bonds must have been purchased after 1989.
• You must pay for the qualified education expenses in the same tax year you cash in your Series I savings bonds.
• You must be at least 24 years or older on the 1st day of the month in which you bought the bonds. If you were 18 years old, for instance, you wouldn't be eligible to use the Series I savings bonds to pay for you or your family's college costs; you'd still be stuck with the tax bill.
• If you are using your Series I savings bonds to pay for the college education of a child or other minor for whom you list as a dependent, the bonds must be registered in your name and / or the name of your spouse. You can list your child as the I bond beneficiary, but you cannot list them as the owner. Otherwise, you won't get the tax exemption on the I bonds when using them to pay for college.
• If you're married, you and your spouse must file a joint tax return to qualify for the Series I savings bonds tax benefits. For same sex partners legally married in the numerous states that permit marriage equality, you're out of luck. Since the Federal government doesn't recognize these marriages, you are, in industry parlance, screwed. Unfortunately, at this time, there's nothing you can do about it unless Congress acts to repeal the Defense of Marriage Act (DOMA).
• You must meet the income limits set forth by the Treasury Department to qualify for the tax benefits of the Series I savings bonds. There are some detailed calculations to arrive at whether or not you qualify (see IRS form 8815). For the last full fiscal tax year, 2008, the interest deduction begins to phase out at $67,100 modified AGI and is completely gone at $82,100. For married joint filers, the tax benefits start to get reduced at $100,650 and are completely gone once your modified adjusted gross income exceed $130,650.
• The college, vocational school, or university must meet federal assistance standards, such as the guaranteed student loan program. Otherwise, you won't get the Series I bond tax exclusion.

What is Form 1099-OID?

You are issued a Form 1099-OID when you have purchased a bond or note for an amount that is less than face value. An OID (Original Issue Discount) is the excess of a bond or note's stated redemption price over its issue price. The stated redemption price is usually the face value of the bond or note (say $10,000). The issue price is generally the amount at which the bond or note was first sold by the issuer (say $9,500).

The profit you make on the purchase ($500 in our example) is the OID and is taxable interest income for you over the life of the bond. You must include a part of the OID as interest income each year you hold the bond - even if you don't actually receive any interest until the bond matures. You'll be issued a Form 1099-OID to document your OID interest.

Question: Are capital gains and capital gain distributions the same thing?

Answer: No. A capital gain occurs when the owner of a mutual fund (or capital asset) sells shares in the fund (or property) for more than its cost and realizes a profit. A capital gain distribution occurs when the mutual fund sells assets for more than their cost and distributes the realized gain to the shareholders.