Are savings accounts taxed like normal income?

Question

For example, if I have $500,000 US dollars and deposit it in an interest bearing account earning 5.0% per year, by the end of the year the interest paid into the account would be ~$25,000. If you were to take that 25K out every year, how much would you have to pay in taxes, if any? Is it based on the same tax brackets as income? Thanks for the clarification.

Answer 1

Sarquadius is incorrect. Interest income is not capital gains, it is taxed as ordinary income. So, yes, it is taxed on the same tax brackets as income, since that's exactly what it is. Some interest though would not be taxable. Interest on Federal obligations (T-bills, U.S. Savings Bonds, T-Notes, etc). is generally not taxed on the state level, so if you had interest from those (and certain other federal obligations) you would not have to pay state taxes on that interest. Interest on municipal obligations is not taxed federally, and if the municipal obligations are from the state that you live in, you would not have to pay either federal taxes or state taxes on the interest income (You possibly might have to pay something due to Alt-Min tax, but that's another yahoo answers question)

Answer 2

Are Savings Accounts Taxed

Answer 3

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RE:
Are savings accounts taxed like normal income?
For example, if I have $500,000 US dollars and deposit it in an interest bearing account earning 5.0% per year, by the end of the year the interest paid into the account would be ~$25,000. If you were to take that 25K out every year, how much would you have to pay in taxes, if any? Is it based on...

Answer 4

You have to pay tax on the interest, whether or not you take it out of the account. The bank will report it to the IRS and you will file a return showing the interest as income. It'll be taxed at your normal tax rate, as if you'd earned it through an employer.

Answer 5

Yes. It does not matter if you remove it or not. On federal tax forms; it falls under the same catagory as income for the year. This is added to all your other income before your deductions to become your adjusted gross income; on which you pay federal taxes on.

Answer 6

I too have the similar case. I have a regular savings account in india and i remit my Euros in this saving account. I am doing this for past one year. Is this a big problem? Also I earn interest more than 10000 INR. So is the interest taxable in india?

Answer 7

Yes sir! It would be taxed like any other regular income.

Answer 8

Whether you take the money out of the account or not, it is taxable as ordinary income to you.

Answer 9

It depends on what kind of account you set up. Some you will be taxed as the $ goes in, and some you will be taxed as the $ goes out. You need to have a professional financial advisor counsel you on your goals and tax status. It would be a terrible waste to put such an amount in an "interest bearing account" with such a low rate of return. Our rates of return are usually several points above benchmark, which is 8% for a diversified portfolio.

Answer 10

Yep... ordinary income.