Tax Tips on Income

Q: Are my Social Security benefits taxable?

A: For many persons, Social Security benefits are not taxable. However, up to 85% of Social Security benefits may be subject to income tax depending on your income.

Q: Are my unemployment benefits taxable?

A: Yes, they are fully taxable.

Q: I reinvested the dividends from my mutual fund. Am I taxed on this income?

A: Yes. Remember to keep records of the additional shares purchased with dividends, as these amounts will reduce your gain (or increase your loss) on a later sale.

Q: What is the tax rate on capital gains?

A: If you have gains from capital assets, such as stocks and bonds, held for less than 12 months that exceed your losses, these will be taxed at ordinary income rates.

For property held more than 12 months, the maximum rate is 20% (10% to extent of 15% tax bracket). Collectibles are taxed at 28%.

Q: I have sold my personal residence. How much of the gain is taxable?

A: If you pass the two-year ownership test, you are allowed to exclude up to $500,000 of gain jointly ($250,000 for singles).

A reduced exclusion is available if ownership is less than two years.

Q: Does the trade date or settlement date govern the year I report stock sales?

A: It is the trade date that governs.

Q: Is interest earned from federal, state or municipal bonds taxable on Form 1040?

A: Federal interest, such as from savings bonds and treasury bills, is taxable. Generally, state and municipal bond interest is not taxable, but still must be reported on your income tax return. (See Minnesota Tax Tips for state rules.)

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