Portfolio Income Overview
This guide provides a comprehensive look at how the Internal Revenue Service (IRS) treats portfolio income in regard to federal income taxes.
Overview
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Qualified Dividends
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Taxed at capital gains rates
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From domestic & some foreign corporations
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Excludes dividends from stock not held more than 60 days during the 121-day period beginning 60 days before the ex-dividend date
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Capital Gain Dividends (Distributions)
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Currently treated the same as long-term capital gains
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Other Dividends - Taxed at regular rates
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Interest Income
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U.S. Government Obligations – Interest (taxable federal)
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Not taxable to states (examples):
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Series E, EE, H, HH and I Bonds
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Treasury bills, notes and bonds
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Taxable to the states (examples):
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Fannie Mae Bonds
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Ginnie Mae Bonds
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FHLMC securities
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Tax-Exempt(Federal)– State and municipal obligations
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Private Activity Bonds – Exempt for regular tax but generally not for AMT
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Taxable – Taxed at ordinary income rates
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Related IRS Publications and Forms
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Pub 17 – Your Income Tax
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Pub 550 – Investment Income
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Form 1040 Schedule B
Caution – Foreign Account Reporting Requirements
1. Individuals with a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must electronically file FinCEN Form 114 on or before April 15 of the succeeding year (automatic 6-month extension if April deadline missed).
2. Code Sec. 6038D requires an individual with an interest in a “specified foreign financial asset” during the year to attach a disclosure statement to their income tax return for any year when the aggregate value of all such assets exceeds $50,000 or other amount set by IRS. Form 8938 is used to make the disclosure.
3. See details of these reporting requirements in the guide "Foreign Reporting Issues".