Putting money aside for that proverbial rainy day is an admirable and necessary goal but it can be a difficult proposition, especially when your paycheck doesn't seem to stretch far enough. Still, savings and investing are essential to your financial well-being, and Americans are saving at a growing rate. According to Trading Economics, the personal savings rate in the U.S. was 5.4% as of April 2016, up from a low of 1.9% in July 2005. Fortunately, the tax laws can help you to make the most of your efforts. It also provides tax breaks if your investments don't work out.
This chapter deals with tax breaks for so-called taxable accounts and other investments that are not held in tax-favored retirement accounts. The tax breaks for IRAs and qualified retirement accounts can be found in Chapter 5. For more information, see IRS Publication 514, Foreign Tax Credit for Individuals; IRS Publication 525, Taxable and Nontaxable Income; IRS Publication 544, Sales and Other Dispositions of Assets; IRS Publication 550, Investment Income and Expenses; IRS Publication 551, Basis of Assets; IRS Publication 564, Mutual Fund Distributions; and IRS Publication 575, Pension and Annuity Income.
Penalty on Early Withdrawal of Savings
Time deposit accounts and certificates of deposit are fixed for a set term. These savings vehicles generally pay a higher rate of interest than money-market and passbook accounts. But if they are cashed in before maturity, a bank penalty is imposed. ...