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About IRS Publication 550: Investment Income and Expenses

Updated: February 23, 2023

If you have income gained from investments, you need to understand how the IRS treats it for tax purposes.  

IRS Publication 550 is a guide that tells taxpayers how investment income and expenses should be reported when filing taxes. It explains what expenses are deductible and describes how and when to file.

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    KEY TAKEAWAYS

    • IRS Publication 550 is a detailed guide that provides information on filing taxes related to investment income and expenses.
    • IRS Publication 550 is written so taxpayers can easily understand their filing requirements.
    • The document is only a guide and should not be considered the final authority on the legal tax code.
    • IRS Publication has five chapters that cover everything taxpayers need to know when it comes to filing taxes on investment income.

    What Is IRS Publication 550?

    IRS Publication 550 is used to explain all aspects of taxable income. This includes what categories of investment income are taxable and what investment expenses are tax deductible. Publication 550 also explains how to show these items on your tax return, how to determine and report profits and losses on the disposition of investment property, as well as including information on property trades and tax shelters.

    Turn Tax Pains Into Tax Gains

    What Does IRS Publication 550 Contain?

    IRS Publication 550 is made up of five chapters. Below is a brief rundown of their contents.

    Chapter 1 contains information about investment income, including:

    • Interest income
    • Discount on debt instruments
    • How and when to report interest income
    • Dividends and other distributions
    • Stripped preferred stock
    • Income from real estate mortgage investment conduits (REMICs, financial asset securitization investment trusts (FASITs) and other collateralized debt obligations (CDOs)
    • Income from S corporations
    • Income from investment clubs

    Chapter 2 covers tax shelters and related regulations, including:

    • Abusive tax shelters
    • Rules for reporting and penalties

    Chapter 3 describes investment interest expenses, such as:

    • Limits on tax deductions
    • Investment interest expenses
    • Bond premium amortization
    • Nondeductible interest expenses
    • How and when to report investment expenses

    Chapter 4 covers sales and trades of investment property, including:

    • Defining a sale or trade
    • Calculating your basis in an investment property
    • Calculating gains or losses on investment property sales
    • Transfers between spouses or related parties
    • Capital gains and losses
    • Special rules for traders of securities and/or commodities

    Chapter 5 closes by providing information about receiving tax help, including:

    • Preparing and filing your return
    • Online tools and more

    How Does IRS Publication 550 Work?

    Taxable investment income is a complex topic, so there are many rules and regulations that taxpayers must follow.

    Interest income covered includes, but is not limited to:

    • Money market funds
    • Certificates of deposit
    • Gifts for opening accounts
    • Early withdrawal penalties
    • Insurance dividend interest
    • Prepaid insurance premiums
    • Tax refund interest
    • Interest on insurance
    It's Time For Owners To Own Tax Season

    Who Uses IRS Publication 550?

    Any taxpayer with investment income and expenses can use IRS Publication 550. It describes how to assess these items when filing tax returns.

    Tax professionals also use IRS Publication 550 to prepare tax returns for their clients.

    Where to get IRS Publication 550?

    IRS Publication 550 can be found on the IRS website, where it can be downloaded in PDF, eBook, or HTML format.

    Additionally, the document can be obtained by picking up a copy in person at a local IRS Taxpayer Assistance Center. Other retrieval methods include submitting an online request or contacting the IRS directly.

    How to Read IRS Publication 550

    IRS Publication 550 is divided into five chapters that describe the filing requirements in detail. Taxpayers should read the document to understand the regulations thoroughly.

    However, taxpayers should note that the document should not be taken as the final interpretation of tax laws. It is meant to be an easily-readable IRS guide to aid taxpayers in their filing process, not serve as a legal authority.

    Summary

    Anyone with income gained from investment expenses will benefit from understanding the many tax requirements. One of the best ways to do this is by reading IRS Publication 550. Taxpayers can find all the information needed to file their taxes on investment income and deduct qualified expenses.

    It will cover what you need to know for things such as net capital gain, income taxes, and other types of tax treatment.

    Save 40 Hours During Tax Season
    Jami Gong headshot

    Written by Jami Gong

    Jami Gong is a Chartered Professional Account and Financial System Consultant. She holds a Masters Degree in Professional Accounting from the University of New South Wales. Her areas of expertise include accounting system and enterprise resource planning implementations, as well as accounting business process improvement and workflow design. Jami has collaborated with clients large and small in the technology, financial, and post-secondary fields. Check out what she’s up to on linkedin: https://www.linkedin.com/in/jami-gong/.

    Jami Gong headshot

    Written by Jami Gong

    Jami Gong is a Chartered Professional Account and Financial System Consultant. She holds a Masters Degree in Professional Accounting from the University of New South Wales. Her areas of expertise include accounting system and enterprise resource planning implementations, as well as accounting business process improvement and workflow design. Jami has collaborated with clients large and small in the technology, financial, and post-secondary fields. Check out what she’s up to on linkedin: https://www.linkedin.com/in/jami-gong/.

    FAQs on IRS Publication 550

    What Does the IRS Consider as Investment Income?

    The IRS definition of investment income includes capital gains, taxable interest, and dividends. It also includes passive income and non-qualified annuities, plus others. It does not include wages, alimony, social security benefits, or unemployment compensation.

    How Do You Report Investment Expenses?

    Information about reporting investment expenses can be found in Chapter 3 of publication 550. The document also contains handy examples for calculating investment expenses and investment income. This is important for everyone, including regulated investment companies.

    Are Investment Publications Deductible?

    Generally, investment-related publications like books and periodicals are tax deductible. However, newspapers and other more general publications are not tax deductible.

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