How Are Joint Investment Accounts Taxed?

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Two hands shaking - How Are Joint Investment Accounts Taxed?

When you are merging your life, one of the big steps that many people take is the merging of their finances. When you move two accounts into a joint account, especially regarding savings, this can be a very smart move.

However, one question often arises: how our joint investment accounts are taxed and who gets to claim the interest?

No matter what happens, income and interest on savings are going to be taxed. Many people think the interest can be claimed by splitting that between the two holders. But this is not the case.

To make sure that you are not making any errors when filing, you have to understand how investment accounts are taxed. So in this article, we’re going to take a look at that in the hopes we can help make this very challenging subject easier to understand.


Should You Report It Equally?

One of the most challenging things about joint investment accounts when it comes to taxation is knowing how to divide and claim said interest. You may be tempted to file equally when it comes to the interest, but this would be a mistake.

You should definitely report it as a piece of income when you’re filing your individual tax returns if you file separately. If you’re filing jointly, it doesn’t matter. You’re going to accrue that altogether anyways.

But suppose you are a couple that files separately or business partners that file separately. In that case, you will want to ensure that you report your portion of the interest to prevent any future problems with the Revenue Service.


Do You Need to Split It In Half?

When it comes to declaring the interest on these joint accounts, the tax return form has no separate space for that.

So you’re going to take the amount of interest on that joint account and add it to your other individual accounts. But do you split that interest between the account holders?

Whether you are a married couple or a business partnership utilizing a joint account, you will want to divide that interest so that each of you can claim it.

Of course, you need to also be very attuned to your local laws as the Revenue Service looks at a division of this income in regards to those.


Step-by-Step Guide For Joint Investment Tax

When you’re filing separately, you’re going to want to ensure that you have your bank send both account holders the 1099-INT form. The total interest will be found on this form.

That means that the very first step that you have to do when it comes to any type of joint investment is to look at the interest and divide it between the two account holders.

Then you will place this on your individual forms, which will be what you claim as income from your interest on your joint account.


Does It Get Taxed Like Any Other Investment?

When it comes to taxing interest from a joint account, it is the same as interest from a regular account. In regards to other types of investments like bonds and stocks, it is taxed slightly differently. It is considered income, and it falls under income tax laws.

This means that it is not only subject to federal law but state taxation if your state has one period.

Understanding this will allow you to have a good grasp on how exactly not only to file your taxes from a joint investment account but also to understand how much it will be taxed.


Common Mistakes You Need to Avoid

Whether a joint account is a right move for you in whatever type of relationship you’re considering incorporating into your financial structure, there are some mistakes you need to avoid.

We thought we’d take a look at a couple of the ones we think are the most common in hopes that we can help you avoid them:


  • You need to look at a joint account’s benefits and disadvantages before investing your money in it. Take the time to dive into federal and state tax laws so that you are fully aware of what a joint investment account entails.
  • Make sure that the individual you are entering into this account with is someone you truly trust. When money gets involved, it can be quite challenging in relationships, and you want to ensure both your financial and personal relationships stay intact.
  • You don’t necessarily have to split the interest 50/50. Looking at the contributions of each person and then doing it as a percentage can, in the end, be fairer.


However, splitting that interest down the middle is a good rule if you are in a relationship where 50/50 is the way to go.


Final Thoughts on How Are Joint Investment Accounts Taxed

Joint investment accounts have their place in a financial budget. But you have to really consider whether it is the right move for you and if it is, then really understanding how it’s taxed and how you claim those taxes is a necessity.

So if you still have questions, we highly suggest you contact a professional though we do hope that our look at this topic has helped you just a bit.