Interest received from bank accounts, interest received on loans made to others, and interest from other sources are termed as taxable interest. Some other examples of taxable interest are interest on money market certificates, and deposited insurance dividend. In other words interest that can be withdrawn and received comes under taxable income.
Knowing what is taxable interest will make life very easy for you when you are filing your tax returns. Here are some sources of taxable interest:
Dividends:
Certain distributions on deposits of share accounts in cooperative banks, domestic saving and loan associations, mutual funds, and credit unions are commonly referred to as dividends. These dividends are interests and should be included as part of your tax return.
Debt instrument:
If you have been issued a debt instrument or a bond note at a discount, you will have to include part of the original issue discount as interest in your income which is taxable.
Interest on insurance dividends:
Interest on insurance dividends is taxable if it is deposited with an insurance company and withdrawn annually. The interest is taxable in the year it is credited to your account.
Interest on Treasury notes and bonds:
Interest on US Treasury notes and bonds, also called as US obligations, are taxable for federal income tax purposes.
Deferred interest accounts, money market certificates and saving certificates:
Interest on money market certificates, saving certificates and deferred interest accounts is generally paid at fixed intervals once a year or during the term of the account. One should include this as part of his taxable income after receiving it.
Money borrowed from bank to invest in money market certificate:
The interest paid when money is borrowed from a bank to invest in money market certificate and interest earned on a certificate is two separate items. It is important that the total interest earned from the certificate must be reported in your taxable income.
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