Corporate Bonds

Archive for August, 2006

Question: purchased interest on bonds?

when a corporate bond is bought you are also paying for the accrual up to that date and then it is refunded or paid back to you on the the day of the interest payment. How is this treated on the 1040.

Answer: You need to match the interest paid against what you received. If you buy a bond in July and pay accrued interest, then when you get an interest payment in September (most bonds pay interest twice a year) you would subtract that off on your Schedule B. On the other hand, if you buy a bond in December and don’t get an interest payment until the next year, then you carry forward the interest paid to subtract from your interest income in the next year.

Schedule B Interest:

Bond Interest payer 500
Bond interest payer – accrued interest paid -75

You don’t net the amounts together because the IRS gets your interest income data from companies and brokers. If you report less interest income than reported to the IRS, your tax information is reviewed. If you list it the way I do, you are much less likely to receive a notice.

I hope this helps.
Gary

Where to invest now rates are so low ?

Question: Will the Government default on Northern Rock Corporate Bonds? What’s your opinion?

http://www.selftrade.co.uk/quote.php?symbole=4uENR0

Answer: I think that is extremely unlikely, the government has not had any problems selling bonds despite the financial crisis and the reason for that is that the institutions buying them are very confident they well get their money back.

Government borrowings are very high, but not at such a level that would be considered unsustainable – this is one reason why the states credit rating has not been downgraded.

In-Depth Look – Corporate Bonds Raring for a Rebound