Learn what IRS Publication 550 covers, how it treats income and expenses from income, and how it can help you file your tax returns.
How IRS Publication 550 Works
IRS publications are written in easily understandable language and format, but it’s important for taxpayers to understand that they’re not the ultimate authority when it comes to tax matters. They’re the IRS’s application and plain-English explanation of the tax law. That said, 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.
Example of IRS Publication 550
IRS Publication 550 has five chapters. The first four explain the tax treatment of various forms of investment income and expenses, while the fifth chapter provides information on how taxpayers can get tax help.
Chapter 1: Investment Income
Chapter 1 covers the tax treatment of investment income, such as:
Interest income Original issue discount Dividend income Income from debt securities such as real estate mortgage investment conduits (REMICs), financial asset securitization investment trusts (FASITs), and other collateralized debt obligations (CDOs) Income from S corporations Income from investment clubs
Chapter 1 also covers topics such as the net investment income tax (NIIT) and the kiddie tax.
Chapter 2: Tax Shelters and Other Reportable Transactions
Chapter 2 covers abusive tax shelters: investment schemes with little economic substance that are designed to generate tax deductions or credits for investors. The IRS will disallow the tax benefits derived from the shelter if it deems a transaction to be abusive.
Chapter 3: Investment Expenses
Chapter 3 covers the tax treatment of investment expenses, including:
Investment interest expense Bond premium amortization Nondeductible interest expenses
Chapter 4: Sales and Trades of Investment Property
Chapter 4 covers key tax concepts pertaining to transactions involving investments, including property. They include:
Establishing what constitutes a sale or trade of an investmentCalculating your basis in investment propertyCalculating gain or loss on the sale of investment propertyHow to account for transfers of investment property between spousesCalculating capital gains and losses
Chapter 5: How To Get Tax Help
Chapter 5 isn’t specific to Publication 550. It’s found in several other IRS publications as well. The IRS provides information to taxpayers in this chapter regarding where they can get assistance with their tax returns.
Who Uses IRS Publication 550?
Taxpayers with investment income and expenses use IRS Publication 550 to determine how to treat these items on their tax return.
Where To Get IRS Publication 550
You can download Publication 550 in PDF, HTML, or eBook format from the IRS website, or you can obtain it in person from a local IRS Taxpayer Assistance Center. You can also obtain IRS Publication 550 by U.S. mail by submitting a request online or by calling 800-829-3676. Phone hours are Monday through Friday from 7 a.m. until 10 p.m. (local time, except for Alaska and Hawaii, whose residents should use Pacific Time).
