Hello and welcome to this session in which we would look at income from property, specifically income from interest. In the next session, we will look at income from dividends. So let's talk about income from property in general. The court has used the fruit and the tree metaphor to determine who should pay taxes on the income from property. The tree represents the property and the income represents the fruit. The owner of the tree has control over the fruit, therefore the owner of the property should pay taxes on the income produced. Why are we saying this? Well, let's consider a situation where a father clips interest coupons. Essentially, the father owns a bond and takes the coupon payments associated with that bond shortly before the interest payment. The father then gives that coupon to his son. So, does this mean that the father transferred the interest from his tax return to his son's tax return? Not really. The father, who is the owner of the tree, will still be taxed on the interest because he retained ownership of the property. Similarly, if a father assigns his daughter to collect rent from a rental property, he will still be taxed on the rent because he retains ownership of the property. This is what we mean by the fruit and the tree metaphor. If you own the property, it doesn't matter who collects the money, you still own the property and will be taxed on the income generated. If you don't want to be taxed, transfer the property to someone else, such as your son or daughter. They will then be responsible for the taxes. Now, let's talk about interest in general. According to the IRS, interest is accrued daily. Therefore, the interest for the period that includes the date of the...
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Video instructions and help with filling out and completing Can Form 1120 Schedule M 3 Penalties
