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interest tax question

Topic closed. 19 replies. Last post 8 years ago by AlecWest.

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Posted: August 14, 2008, 8:52 pm - IP Logged

   Hi, i'm new to this forum so please forgive me if this topic has already been discussed. This is assuming one was lucky enough to hit for multi-millions and chose the lump sum. If they wanted to simply put say 5 million  in "safe" investments like bank accounts and CD's would the tax on the interest  earned be considered capitol gaines (which i believe to be roughly 18%) or regular income which would be taxed at a much higher rate? Just curious just in case i win!

 

TY

    mjwinsmith's avatar - moon

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    Posted: August 14, 2008, 8:59 pm - IP Logged

       Hi, i'm new to this forum so please forgive me if this topic has already been discussed. This is assuming one was lucky enough to hit for multi-millions and chose the lump sum. If they wanted to simply put say 5 million  in "safe" investments like bank accounts and CD's would the tax on the interest  earned be considered capitol gaines (which i believe to be roughly 18%) or regular income which would be taxed at a much higher rate? Just curious just in case i win!

     

    TY

    Interest earned on Bank CD's is considered INTEREST and tax as Inerest Income (fully taxable) no capital gaines since this is not a capital asset like stocks and bonds.

      savagegoose's avatar - ProfilePho
      adelaide sa
      Australia
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      Posted: August 15, 2008, 1:16 am - IP Logged

      if the profit comes in cash its income, if it comes in increased value of the asset its capital gains. if its decreased value of the asset its capital loss.

       

      wow imagine if we could claim capital loss on falling value of the dollar, no one would owe taxe any more.

       

      also if its a company earning the interest you caim it at company tax rates, and an individual at personal income tax rates. usually company tax rates are a lot lower than personal , here in australia , its 15% difference, so you wouldnt want 5 mill all in your own name pullling interest, and more importantly paying a higher tax rate, if u can halp it.

      2014 = -1016; 2015= -1409; 2016  = -1171; 2017 = ?  TOT =  -3596

      keno historic = -2291 ; 2015= -603; 2016= -424; 2017 = ? TOT = - 3318

        justxploring's avatar - villiarna
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        Posted: August 15, 2008, 1:54 am - IP Logged

        Do you work & file taxes?  If you do, look at form 1040 (or whichever form you use) where it says "INCOME."  First line will always be Wages/Salary (from W-2s)  Second line is Taxable Interest.  You will receive a 1099 statement from each bank in which you have an interest bearing account.

          AlecWest's avatar - alec
          Vader, Washington
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          Posted: August 15, 2008, 5:04 pm - IP Logged

          Or, you could take a trip to Germany.  Put the money in bearer bonds issued by Deutsche Bank, guaranteed by the government up to the value of the bond.  They draw interest, too.  And the neat thing about them is they're "numbered" securities that cannot be tracked to you by name or any domestic identifying number.  Then, be very very quiet ... cashing in the bonds only when you need to by visiting their office in Canada (buying/selling bearer bonds in the US is illegal).

          Eureka!  No tax at all (grin).  Just remember not to make any single deposit of $5,000 or more in a U.S. bank since transactions over that amount are reported to the IRS and might make them curious (grin).

          Red Devil Regards - J. Alec West

            justxploring's avatar - villiarna
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            Posted: August 15, 2008, 6:18 pm - IP Logged

            buying/selling bearer bonds in the US is illegal

            So is tax evasion.  LOL

            " Just remember not to make any single deposit of $5,000 or more in a U.S. bank since transactions over that amount are reported to the IRS and might make them curious (grin) "

            It's form 8300 and the amount is $10,000 or more.  It's unlikely the IRS would investigate someone who deposits a small amount of money like $5,000 or even $10,000 unless they have a good reason.  They don't have the manpower.   By the way, this form is used in any sales transaction where the buyer pays $10,000 cash or money order.   If the buyer uses a check for $5,000 and pays $5,000 cash, then form 8300 is not required. 

            Okay, so how would you get the money to Germany?  You can't leave the country with more than $10,000 cash (without an explanation that is)   Any wire transfers can be traced.  Do you take a boat, fill it with money and sail across the Atlantic?

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              Posted: August 15, 2008, 6:45 pm - IP Logged

              Could you just buy the bonds at the Canadian branch instead of flying to Germany? I've driven across the border several times without so much as a glance.

                AlecWest's avatar - alec
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                Posted: August 15, 2008, 7:22 pm - IP Logged

                Justxploring,

                Ahhh ... it went up to $10k.  First, let me say that my bearer bond post was made with at least "part" of my tongue in cheek.

                On getting money out of the country, that's easy.  Yes, wire-transfers can be traced.  But activities after the transfer are a lot harder to trace.  Since bearer bonds are not listed in any name, buying them ends the ability to track the money.  Even the purchase record is linked only to the number assigned to the bond - not the person buying it.  If the IRS asked you what you did with the money, you could always tell them you took a train from Stuttgart down to Montenegro and had a bad week at the baccarat tables in the Maestral Casino (grin).  Or, there's a simpler excuse.  And the bigger the jackpot, the more believable that excuse would be.

                Simply tell them that your jackpot is so big that you've decided against investing it ... choosing instead to live off the principal ... a principal which was simply put in a Deutsche Bank safe deposit box.

                I know you can buy bearer bonds in Germany.  And while Deutsche Bank has several offices around the globe, including one in Canada, I'm uncertain whether you can buy them there.  Bearer bond laws certainly vary from one country to another.  It would be worth checking out, in any event, if your desire to keep the money in YOUR pocket is strong.

                Regards - J. Alec West

                  justxploring's avatar - villiarna
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                  Posted: August 15, 2008, 7:52 pm - IP Logged

                  I don't like paying taxes, but I think I'd hate Federal prison even more!  BTW, I sold cars in 1996 and we had to watch a film about money laundering.  It was funny, because the test asked a question like "If someone walks up to you with $50,000 cash in a briefcase & makes you an offer, what do you do?"  (a) Get the manager  (b) ask him where he got the money  (c) ask how much your take is   

                  Although (a) is obviously the correct answer, I definitely wouldn't have done that since the manager probably would have given the guy a car and taken my cut.  LOL

                    AlecWest's avatar - alec
                    Vader, Washington
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                    Posted: August 15, 2008, 8:11 pm - IP Logged

                    I don't like paying taxes, but I think I'd hate Federal prison even more!  BTW, I sold cars in 1996 and we had to watch a film about money laundering.  It was funny, because the test asked a question like "If someone walks up to you with $50,000 cash in a briefcase & makes you an offer, what do you do?"  (a) Get the manager  (b) ask him where he got the money  (c) ask how much your take is   

                    Although (a) is obviously the correct answer, I definitely wouldn't have done that since the manager probably would have given the guy a car and taken my cut.  LOL

                    I don't think there'd be too much of a chance of going to Federal prison for tax evasion.  The first thing the IRS would have to do is prove that the bearer bonds are in your possession.  Then, since you've already paid taxes on the jackpot income, they'd have to prove that those bonds had earned interest taxable under the law.  If the IRS tried to take you to court without proof that you'd earned taxable income from bearer bonds ... or even HAD bearer bonds in your possession, your attorney would file a writ of habeas corpus forcing the IRS to "show the body of evidence."  No evidence, no case.  And even if they DID try to take you to court without that evidence, your statement that you're "living off the principal," especially if the jackpot was sizable, would be ample reasonable doubt.

                    Case dismissed.

                    Regards - J. Alec West

                      AlecWest's avatar - alec
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                      Posted: August 15, 2008, 8:44 pm - IP Logged

                      P.S.  Incidentally, if I did win a big jackpot, the thought of living off the principal really appeals to me.  Until the day comes when Congress institutes a "wealth" tax, the IRS can only hassle such a jackpot winner over income subsequent to winning.  And of course, money sitting in a safe deposit box earns no income (grin) ... a modern-day and secure way to put money "under the mattress."

                      Remember the recent failure of IndyMac Bank?  Depositors with accounts exceeding FDIC limits really took a hit on that failure.  But (grin), even though the bank failed, it didn't affect the ability of customers to access their safe deposit boxes.  Customer's lost nothing from whatever was in those boxes.

                      Besides, I'm certain that "living off the principal" would make a few IRS people gnash their teeth ... knowing they couldn't do anything about it.  I'd take some pleasure in that knowledge, hehehe.

                      Regards - J. Alec West

                        JAP69's avatar - alas
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                        Posted: August 15, 2008, 8:55 pm - IP Logged

                        P.S.  Incidentally, if I did win a big jackpot, the thought of living off the principal really appeals to me.  Until the day comes when Congress institutes a "wealth" tax, the IRS can only hassle such a jackpot winner over income subsequent to winning.  And of course, money sitting in a safe deposit box earns no income (grin) ... a modern-day and secure way to put money "under the mattress."

                        Remember the recent failure of IndyMac Bank?  Depositors with accounts exceeding FDIC limits really took a hit on that failure.  But (grin), even though the bank failed, it didn't affect the ability of customers to access their safe deposit boxes.  Customer's lost nothing from whatever was in those boxes.

                        Besides, I'm certain that "living off the principal" would make a few IRS people gnash their teeth ... knowing they couldn't do anything about it.  I'd take some pleasure in that knowledge, hehehe.

                        Regards - J. Alec West

                        "Besides, I'm certain that "living off the principal" would make a few IRS people gnash their teeth ... knowing they couldn't do anything about it.  I'd take some pleasure in that knowledge, hehehe."

                         

                           I would enjoy that pleasure too.    Green laugh

                        Type

                          AlecWest's avatar - alec
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                          Posted: August 15, 2008, 10:20 pm - IP Logged

                          "Besides, I'm certain that "living off the principal" would make a few IRS people gnash their teeth ... knowing they couldn't do anything about it.  I'd take some pleasure in that knowledge, hehehe."

                           

                             I would enjoy that pleasure too.    Green laugh

                          Actually, getting back to my earlier post, if the IRS went to court without proof that I had taxable interest income from bearer bonds, it would never make it to an actual trial.  Such a case would be killed at the Grand Jury level.  They couldn't just say, "Well, we really find his situation suspicious," or "we're certain he's making taxable interest income."  They'd have to say to a Grand Jury, "Mr. West was in possession bonds numbered 1X494BB21494 - 1x494BB21621, each valued at $20,000, and each drawing interest for the last 18 months."  And then, they'd have to show them the bonds and an interest statement from the bank showing that the bonds generated income (grin).  If they couldn't show them the bonds and proof of interest accrual, they've proven nothing ... since the interest income accrues on the bond, not the bearer (who could have cashed in or given away some of those bonds to other people who would NOW be the tax-responsible parties).

                          FWIW, making the buying and selling of bearer bonds illegal in the USA was just a feel-good law.  I'd speculate that most of the wealthiest people in the world have a lot of their liquid assets in interest-bearing numbered securities ... and probably spread around among different banks and in different countries (and drawn on different currencies).  For the IRS, this is probably their worst possible nightmare ... and one they'd just as soon not talk about.

                          Just my personal opinion ... but I believe this country should abandon all income taxes and go to a system that taxes consumption.  And though wealth taxes don't exist in the Federal realm (yet), they do exist at the state level (eg., property tax) ... and I also think THOSE taxes should be replaced with consumption-based taxes.

                          Regards - J. Alec West

                            justxploring's avatar - villiarna
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                            Posted: August 15, 2008, 11:29 pm - IP Logged

                            This was a thread about income tax and if it is taxable as income, and we've gone way, way off on another subject.

                            A lot of people enjoy challenging the IRS,  but if I won millions, I hope I'd be too busy enjoying life and helping others to bother with lawyers and Grand Jury hearings, etc.

                            Regarding bearer bonds, keep in mind that the reason they were outlawed was because they're not registered bonds and cannot be traced.   A safe deposit box is also not insured and, in the likely event its contents are destroyed or stolen, you will lose your money. 

                            Good luck!

                              Idesire$'s avatar - Lottery-025.jpg
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                              Posted: August 15, 2008, 11:41 pm - IP Logged

                              Very , Very interesting subject....................................Hummmmmmmmmmmmmmm