Tax advantages of certificates of deposit are not just limited to accumulation of wealth. A certificate of deposit, also called an ING Direct Deposit can be used for saving purpose, such as for making mortgage payments. The certificates can be made out of money market instruments, government bonds and foreign currencies. Certificate of deposit interest rates are tied to current market rates.
It is very essential to understand how to make the most of certificates of deposits for tax benefits. Some investors do the saving through dividends or capital gains. These should be reported on the income statement. Dividends paid on stocks should be reported on your personal tax return every year.
In general, an offshore bank account will provide higher savings than an inshore bank account. Also, an investor can opt for higher interest rates, flexible terms and other privileges, which an offshore bank account cannot provide. However, these higher charges are applicable in only certain countries. For instance, the rates of taxation applicable in Ireland are much lower than those applicable in US. There are some financial policies that are applicable only to residents of certain states like Nevada and New Jersey, but they are available to residents of other states if they comply with state-specific laws regarding offshore banking.
Many investors must submit their offshore bank statements and yearly statements of financial activities to the relevant authorities. These documents are required to ascertain the tax benefits the investors may have obtained. The tax department of a particular US state, or the Internal Revenue Service, will provide the application forms and instructions to the applicants. The forms are generally available online.
Other advantages include exemption from estate and gift tax and establishment of a retirement account. You need to remember that there are certain rules and regulations applicable in the US. For example, investing in a mutual fund is not considered an investment for tax benefits. Only certain mutual funds are exempted from gifting, and only after a five-year period as determined by the IRS.
The tax benefits are not limited to gains on sales or purchases, although such purchases will be taxed as ordinary income. Real estate and certain manufactured items also qualify for tax benefits. Certain business interests are also exempt from the gifts, although these interests are not taxable. One more advantage is that you may be able to depreciate any interest paid or accrued during the year. Hence, if you invest money in a mutual fund, for example, over a period of five years, your capital gain amount will be substantially less.