Q: I have a tax question
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?
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A:
For your Certificate of Deposit (CD) that matures on January 1st, 2025, the timing of tax liability on the interest it earns depends on the type of CD and the method used for tax reporting by the financial institution.
1) Generally, for most CDs, you are required to pay taxes on the interest earned annually. This means that if the CD is accruing interest in 2024, you would report and pay taxes on that interest on your tax return filed by April 15th, 2025. The tax liability occurs in the year the interest is earned, not when the CD matures.
2) Even if you are reinvesting the interest earned by rolling it over into another CD, the interest earned is typically still taxable in the year it is credited to your account. You do not have to physically withdraw the interest for it to be taxable. The bank will usually report the interest earned on a Form 1099-INT, which you will use to report the interest on your tax return.
It's important to verify with your bank how they report the interest income to the IRS and whether your CD is a standard type or has special tax reporting rules. Consulting with a tax professional can also provide clarity and ensure that you comply with all tax obligations related to your CD investments.
Remember, understanding and adhering to tax laws and regulations is crucial in managing your financial responsibilities effectively.
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