cd's & taxes

Most tax filers owe taxes as cash is received. So, if your CD pays no interest until next year (as many short term CDs do), then you'll owe nothing this year (no interest), but you will owe taxes on the full amount of interest next year. Longer CDs pay interest periodically, and you'll owe taxes on interest in the year it is credited.

For example, here's Citibank's description of its CDs:

" Interest can be paid monthly to your CD, checking or savings. For CDs with terms of one year or less, interest can be deferred until maturity or credited to your CD each month." CD interest is like any other ordinary income. It gets added to ther rest of your ordinary income (e.g. wages). So, the more ordinary income you have (other than the CD), the more tax you'll pay on the CD (assuming your state's tax rates increase with amount of ordinary income). Without knowing the total amount of ordinary income, it is often impossible to tell how much tax you'll pay on each extra dollar of CD interest.

If you are already in the top tax bracket for your state, then that is the rate of tax you'll pay on the CD interest.

Mark Freeland snipped-for-privacy@sbcglobal.net

Basic state income tax rates for all states are at

and . Some states, such as Tennessee, have very specific rules on what federally taxable interest income is state taxable or free from tax. If you are talking about a large investment amount and interest income, you may be required to make quarterly estimated tax payments to the IRS and your state revenue dept.

It would be easier for all to answer your questions if you specified your state and ballpark investment amount.

messagenews: snipped-for-privacy@i42g2000cwa.googlegroups.com...

atwww.taxfoundation.org/taxdata/show/228.htmlandwww.taxadmin.org/FTA/rate/ind_inc.html. Some states, such as Tennessee,

messagenews: snipped-for-privacy@i42g2000cwa.googlegroups.com...

CDs:

" Interest can be paid monthly to your CD, checking or savings. For CDs with> terms of one year or less, interest can be deferred until maturity or> credited to your CD each month.">