The Waterbury Democrat. [volume] (Waterbury, Conn.) 1917-1946, 1943-01-29
YOUR INCOME
TAX
No. 20
INTEREST INCOME

Interest income Is entered in the
return Form 1040 as items 8 to s.
Interest is. variously taxable, some
interest being wholly tax exempt
and some partly tax exempt. Wholly
tax-exempt interest includes inter-
est on Ca obligations Of o State,
Territory, or political subdivision
thereof, or Of the District Of Col
umbia, or United States possessions:
go obligations issued rior to March
l.. 194l,. under the Federal Farm
Loan Act, or amendments to the
Act; Co obligations Of the United
States issued on or before Sep
temher /, 1917; and (d) Treasury
notes, Treasury bills, and Treasury
certificates Of indebtedness issued
prior to March !, 194l. Although
such interest Is tax exempt, the
amount Of such obligations held by
the taxpayer, as well as the amount
70 interest received or accrued DUR
ing the year, must be shown in the
return Gin Schedule A..
Certain other interest Is partially
tax exempt. Interest on United
States Savings bonds and Treasury
bonds issued prior to March !, 1941,
Is Of this class. Interest on such
bonds Is exempt from normal tax,
and on holdings Of such bonds Is
exempt from normal tax, and on
holdings of such bonds up to 5000
principal amount Is exempt from
surtax also; that is, interest on
such bonds held in excess Of 5000
principal amount must be included
in surtax net income for computa-
ton Of surtax.
Interest on obligations issued on
or after March !, 1871, by the
United States or any agency or in
strumentality Of the United States,
Is subject to both normal tax and
surtax. However, In the case OF OBJ
legations issued at : discount, for
example, war savings bonds, where
income Is reported on the cash
basis, the interest may be reported
| each year as accrued (Shown IN q
table on the bonds as the increase
In the redemption valued or 1t may
be deferred until the bonds come
due, when it may all be included as
income in that year. Once a tax
payer has elected to accrue the dis
count, he can not change to the
other method)
On certain bonds with q "tax free
covenant" the corporation issuing
the bonds pays part Of the income
tax on such bond interest q per
cent of the total interest earned by
the bond). A person receiving in
terest on such bonds is entitled to
d credit Of the amount Of income
tax paid by the corporation in COM
| putting his tax due. The amount Of
/ such credit for tax paid at the
source is entered in item 81 Of the
return Form 1O40.
Interest on coupon bonds Is con-
sidered received when the coupon
becomes due and payable, irres-
spective Of when the taxpayer CASH
/ es or presents the coupon for pay
ment (unless, Of course, the issuer
Of the bonds Is in default and no
funds are available to l.leet the in
| terest). Interest on savings and de-
post accounts is considered as re-
ceived when 1t has been credited to
the account Of the taxpayer, sub
ject to his withdrawal, irrespective
OF whether he withdraws Il or not.
Other interest Is considered as re-
ceived when paid or made available
10 the holder Of the obligation.
Sometimes, notes ara sold AZ Q
discount and redeenled &C the face
amount. While such discount Is fEes
quently considered interest IN the
commercial sense, for tax purposes
Il represents Q gain from sale o. ex-
change Of property and "a not ~.
ported as interest, but as q gain un-
der item 8.