On savings accounts, how much interest do you have to earn in a year to have to pay Capital Gains taxes?

Question

For example, say you have $5,000 in a 5% interest savings account. Which would be $250 in interest a year. At what amount do you have to pay capital gains tax?

Answer 1

one dollar $1.00

Answer 2

Interest is reported on Form 1040, Schedule B as ordinary income - starting with the first dollar earned. But suppose you bought a corporate bond for $5,000 that paid 5% interest and suppose this bond was to mature in 10 years and the corporation had no right to pay it off early. And suppose interest rates went down so that $5,000 10 year bonds that were newly issued by the same corporation were paying only 4% interest - Your 5% bond would be worth more - and if you sold it at a gain - say for $5,500 you would report the capital gain on Form 1040 Schedule D.

Answer 3

There are rules regarding the amount of unearned income a minor can receive without paying tax at the parent's rate. In the current year, if taxable investment income exceeds $1,700, it must be taxed at the parent's tax rate. This amount is subject to change and is something you must review carefully. I would hope that any investment vehicle would, in time, generate more annual income than the threshold. The link below may be a useful starting point. See page 11, about half way down the second column. There is no substitute for professional advice to ensure that you get the maximum tax breaks. Consult a CPA or Enrolled Agent. Be wary of trusting advice you get from a Customer Service Representative at the bank. I have worked for both banks and CPAs and I know who I would trust more with this sort of advice.

Answer 4

It's not capital gains, interest is ordinary income and does not qualify for the long term capital gains treatment or rates.

The bank or other institution will send you a 1099-INT if the amount of interest is $10 or more, and will report it to the IRS. Even if the interest is less than that, you are legally required to report it on your tax return if you are filing one. If your total income, including the interest, is below the limit where you have to file, then you don't have to report it unless you file anyway.

Answer 5

It would be better if you could pay capital gains taxes since long-term gains are generally lower. But interest is including with the rest of your income and is used to compute adjuste gross income. But banks usually won't issue a 1099-INT unless the interest exceeds $5.00.

Answer 6

You don't pay capital gains tax on a simple interest savings account. You only pay capital gains tax on stock investments such as those with mutual funds.

Answer 7

Interest Income is subject to ordinary income tax; not Capital Gains tax and you should report all of it.....even $1.00 on the return.

Answer 8

Interest is seperate from Capital Gains and you are asked specifically about interest as your bank must send you a 1099 form stating interest earned.

Answer 9

Judy's answer is entirely accurate. I have one clarification. Unearned income, such as interest, can reduce the amount of income at which filing is required.