May be a stupid questions

HAPPY2BAMOM · **May be a stupid questions**

Do you get taxed on CD's after the term is over? The other question is if I file my taxes with dh does that mean I may owe money to the IRS for the amount in the CD?

I am so new to all this and I want to know these things before I set up a CD.

Cookie2 · 07-22-2008, 10:48 PM

I'd have to look it up on the IRS.GOV website, but I believe CDs are considered taxable passive income, like interest you'd earn on a savings account. The only time they aren't taxable is in a non-tax 401k or IRA account. If the financial institution sends you a 1099, then you need to report it as apart of your family income.

desertmom · 07-23-2008, 02:03 AM

Right. Unless the CDs are in a sheltered account, such as an IRA, the taxes and income are not deferred. I believe the limit was $400 per year before you actually get charged tax on it (may have changed by now), but you have to report any interest received as income. Of course, if it's in a retirement or sheltered account, you pay taxes on removal.

But you have to claim that income whether or not the CD has actually come due. So if it's a 3 year CD, you still have to claim that income annually.

As far as the principal in the CD, if it just came from regular funds, not a 401K or other tax shelter/deferment, you've already paid taxes on it, so the principal is not taxable again, as that is not earned income.

HTH.

Cookie2 · 07-23-2008, 04:05 PM

As my tax accountant would say, "They never tax you 100%." So it is probably worth starting the investment anyway.

LawDawg · 07-23-2008, 04:16 PM

You only pay tax on the earned interest paid to you.

So if you get your interest returned at the end of a term or upon withdrawal you would owe no tax on anything until the end of the term or withdrawal.

If you invest in tax free municipal bonds (in essence loans to the government) there is no tax on those investments in certain states and federally.