Income taxes

"J. Holder" wrote

I'm not sure what you're asking, but I am sure the answer is no. You may have a few dollars in interest this year, that amount may change your total taxes (by increasing it) which would reduce your refund (if you were expecting one), but that amount is in relation to the interest earned. If you had $8000 in the bank for the entire year, it would only earn $380 of interest, at the highest tax bracket (35%) that's only $133 of tax. It's most likely that your numbers are going to be much smaller. But - the physical amount in the bank has no impact on your refund amount.

-- Paul A. Thomas, CPA Athens, Georgia

you are correct you will only be taxed on the interest earned no other effect on your tax return

Good for you.

Right.

No. The IRS doesn't care where you park your money.

Perhaps you've confused this account with an IRA. If you had contributed the money to an IRA you could deduct it (up to the annual contribution limit), but then of course you'd be subject to the IRA rules when you take it out.

If you mean will your tax liability be lowered the answer is no. If you mean will your tax refund be lowered because you have more than just the interest earned in your account the answer is no.

The funds you have/put in bank interest bearing accounts generally have no relation to the federal taxes you pay. Only income earned from such deposits are taxable.

For interest like this you pay tax on the interest in the year in which it's paid to you (credited to the account). Keeping it in the bank or spending it, doesn't matter. If this money is long term savings (say 10 years) you might consider putting a portion into a stock index fund. Depends what you intent is for these funds. JOE

The interest you earn during the year is taxable income; the deposits made to the savings account are not (they were probably already taxed). Your tax refund is based on your total taxable income and total tax withheld and/or paid as quarterly estimates. It's impossible to tell, based on the information provided, what effect your interest earnings will have on your refund.

I assume that by "income tax return" you mean the amount of your money the government returns to you after having had free use of it for up to a year. Also known as a "tax refund." Your bank balance does not directly affect your refund. The interest on the account, however, will increase your income and your income tax, all other things being equal. In that case, if you do not change withholding, you will see a lower refund or even tax due when you file.

-- D.F. Manno | snipped-for-privacy@mail.com