Q: Do you pay tax yearly on the interest on CDs or when the CDs are cashed?
A: You report interest income received on Certificates of Deposit (CDs) in the year the interest is credited to your account. Each January, the financial institution that holds the CD will send to you a Form 1099-INT, which shows the interest income you must report.
Q: What is the difference between "ordinary dividends" and "qualified dividends"? My 1099 dividend statements were marked by the companies as both.
A: Qualified dividends are a subset of your ordinary dividends. Qualified dividends are ordinary dividends paid out of the profits of the company. Qualified dividends are subject to the same tax rate that applies to net capital gains. Qualified dividends are reported on Line 9b of Form 1040. The tax-instruction booklet contains a work sheet on qualified dividends and capital gains taxes, which you can use to compute your tax. Using the worksheet will tax the qualified dividends at the capital gains rate.
Q: Do I pay taxes on child support?
A: Child support payments are not taxable. Receipt of alimony payments is taxable.
Q: How can you distinguish whether I am self-employed or just have rental income? I have mini-storage units that I rent out, and I'm not sure if it is rental or self-employment income.
A: If you just rent space in the public-storage facility, your income and expense is reported on Form 1040 Schedule E as rental income. However, if you provide any services with your rentals, you have a business, and all the income and expenses go on Schedule C. In other words, if you also are selling packing boxes, materials, tape or the like, or if you are also renting equipment, then you are self-employed and must use Schedule C and Schedule SE if your net profit is at least $400.
Q: I received an academic scholarship. Is this taxable?
A: Qualified scholarships and fellowships are treated as tax-free amounts if all of the following conditions are met:
- You are a candidate for a degree at an educational institution.
- Amounts you receive as a scholarship or fellowship are used for tuition and fees required for enrollment or attendance at the educational institution, or for books, supplies, and equipment required for courses of instruction.
- The amounts received are not a payment for your services unless required by the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program.
Through the AARP Foundation Tax-Aide program, AARP Foundation is providing online tax counseling as a public service, and cannot guarantee the accuracy of the information provided. Your taxes are your responsibility. You are solely responsible for what you do in your own tax situation.
The AARP Foundation Tax-Aide Program is a volunteer-run, free tax-preparation and assistance service offered to low- and middle-income taxpayers with special attention to those age 60 and older. Our volunteers are trained and IRS-certified to understand individual federal-tax issues. Our volunteers provide tax assistance as a public service and cannot guarantee the accuracy of the information provided.
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