Q: My question is a 2 part question I have a CD that matures on January 1st, 2025 2 questions...
My question is a 2 part question
I have a CD that matures on January 1st, 2025
2 questions...
1) so do I then pay taxes on the interest on April 15th of 2024, or on April 15th of 2025?
2) also I'm NOT having the Interest paid out to me, I'm keeping the interest IN THE CD, and rolliing it over to another CD on January 1st, 2025. I'm also keeping the interest inside THAT CD too....so when do I pay taxes on the interest, only when it's PAID to me?
Thank you!
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A:
For your Certificate of Deposit (CD) that matures on January 1st, 2025, understanding when to pay taxes on the interest it earns is important for your tax planning.
1) Generally, you are required to pay taxes on the interest earned from a CD in the year it is accrued, not when the CD matures. This means you would pay taxes on the interest earned in 2024 on your tax return filed by April 15th, 2025. The IRS requires taxpayers to report income in the year it is earned.
2) Even if you are not having the interest paid out to you and are rolling it over into another CD, the interest is still considered earned income for the year it was credited to your account. You do not have to physically receive the interest payment for it to be taxable. The financial institution will report the interest earned to both you and the IRS, typically on a Form 1099-INT, which you use to report the interest on your tax return.
It's important to keep track of the interest your CD is accruing each year and report it accordingly on your tax returns. Consult with a tax professional if you have any uncertainties, as they can provide personalized advice and ensure your compliance with tax laws.
Remember, staying informed and proactive about your tax obligations is key to effectively managing your finances and avoiding any surprises during tax season.
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