IRS Publication 550: What You Have To Pay, How To Pay Less Tax?

IRS Publication 550

The IRS Publication 550 (also called IRS Pub 550) is a document that provides taxpayers with information about the treatment of investment incomes and expenses at the time of tax returns. The United States Internal Revenue Service publishes this document, and with the help of this, you can determine how to return taxes on your investment income and expenses.

In this article, you will learn some of the general details about the Publication 550 of the IRS. You will also understand the constituents of this document and how it works. Then, we shall also discuss when and how to use the IRS 550 at the time of tax returns. Hence, to find out more about IRS Publication 500 and its usefulness, read on through to the end of the article.


What Is The IRS Publication 550?

The IRS Publication 550, according to Investopedia,

provides information on how investment income and expenses are to be treated when filing taxes. IRS Publication 550 explains what investment expenses are deductible when gains and losses from the sale of investment property are to be reported and what type of investments are considered taxable.

Whether you are an investor who has purchased a US property from a foreign individual or maybe the owner of a firm, you will always want to withhold some part of your income tax. In the IRS Publication 550, you will learn about such details related to your taxes on investments and expenses.

In this document, you will find a detailed guide (five chapters) on how to file your taxes related to investment income and expenses. You will basically find the requirements that you need to fulfill to file your taxes. However, you must understand that this document is just a guide to paying your taxes and withholding features. It is in no way the final authority on the Tax Codes and Laws.

What Are The Constituents Of IRS Publication 550?

Investopedia adds about Publication 550 –

This is one of the agency’s most complex topics, covering information on the tax treatment of investment income and expenses. It includes information on the tax treatment of investment income and expenses for individual shareholders of mutual funds or other regulated investment companies, such as money market funds, according to the IRS.

You will get here information about what areas of your investment income are taxable and what areas of your investment income are deductible. Furthermore, this document also explains to you when and how you can show this income on your tax return.

In addition to that, you can gain information about how to find out and report gains and losses once you have disposed of an investment property. The IRS Publication 550 also consists of sections related to property trades and tax shelters.

The following are the contents of the document IRS Publication 550:

Chapter 1: Investment Income

Here is the information in the first chapter:

  1. Interest income
  2. Stripped preferred stock
  3. Discount on debt instruments
  4. Dividends and other distributions
  5. How and when to report interest income
  6. Income from real estate mortgage investment conduits
  7. Income from investment clubs
  8. Income from S corporations

Chapter 2: Tax Shelters And Related Regulations

Here is the information in the second chapter:

  1. Rules for reporting and penalties
  2. Abusive tax shelters

Chapter 3: Investment Interest Expenses

Here is the information in the third chapter:

  1. Limits on tax deductions
  2. Nondeductible interest expenses
  3. Bond premium amortization
  4. Investment interest expenses
  5. How and when to report investment expenses

Chapter 4: Sales And Trades Of Investment Property

Here is the information in the fourth chapter:

  1. Defining a sale or trade
  2. Capital gains and losses
  3. Calculating your basis in an investment property
  4. Calculating gains or losses on investment property sales
  5. Transfers between spouses or related parties
  6. Special rules for traders of securities and/or commodities

Chapter 5: Receiving Tax Help

Here is the information in the fifth chapter:

  1. Preparing and filing your return
  2. Online tools and more

How Does The IRS Publication 550 Work?

According to,

Publication 550 is designed to give you a fundamental understanding of taxable investment income and expenses so you’ll be armed with this knowledge if you decide to seek professional help with your tax return or even prepare your tax return yourself.

Tax filers can also take the help of IRS Publication 550.

The document consists of a useful table where you can report different types of investment income on each type of tax return that you make. You can get the form 1040 with it as well.

The interest incomes that are covered in IRS Publication 550 are:

  1. Money market funds
  2. Gifts for opening accounts
  3. Certificates of deposit
  4. Early withdrawal penalties
  5. Prepaid insurance premiums
  6. Insurance dividend interest
  7. Interest on insurance
  8. Tax refund interest

When And How To Use The IRS Publication 550?

Since the IRS Publication 550 is a simple guide, any taxpayer can use this document to make an assessment of their investment income and expenses at the time of filing returns. However, taking the help of tax professionals is always recommended.

You can get IRS Publication 550 on the official website of the IRS, and you can check out the document in PDF format. You can also take a print or pick up a copy of the document at your local IRS Taxpayer Assistance Center.

While making tax returns on your investment income and expenses, you can also make use of the tax assistance present in the IRS website, which will guide you on every step you take.

Wrapping Up

The IRS Publication 550 is a guide on how to report your investment income and expenses, and how much tax to withhold. There are five chapters inside this document. The first four chapters consist of tax issues related to investment income and expenses, while the last chapter offers information on how to get help regarding tax returns.

Hence, you can see that the document is an easy guide on how to file your tax returns and how to treat your taxes related to investment income and expenses. Do you think that the IRS Publication 550 can be simplified more? Share your opinions with us in the comment section below.

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