Definition:Imputed interest is a concept leveraged by the Internal Revenue Service (IRS) to determine the amount of interest that should be reported for tax purposes. This concept is also important to discounted bonds without a stated interest rate and other securities that mature at their par val...
The IRS views interest as taxable income, and if it is not declared on a transaction or the rate is low, it will use the applicable federal rate to determine how much tax to charge. In a simple example of how imputed interest can come into play, a person who holds a bond can be ...
What is annual revenue? What is contra revenue? Define the word revenue What is the revenue recognition principle? What is a revenue growth strategy? What is imputed income? What is an income statement? What are income accounts? What is gross income?
Interest-Free Loans: If an employer provides an employee with interest-free loans, the amount of the loan must be counted as imputed income to the employee. Unreported tips:If a worker does not report tips received from customers, the IRS may impute an amount of income based on the worker...
Payroll deductions are a portion of employee wages withheld to pay taxes, garnishments and benefits. Learn more about how they work.
Zero-coupon bonds are debt securities that are sold at a deep discount for a price far below their face value. This is because they don't make regular interest payments.
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Imputed interest is a term used in tax law to describe a situation where a lender charges no interest on a loan, but the Internal Revenue Service (IRS) considers the loan to have been made at an interest rate that is "imputed" or implied by market conditions. This can happen when a l...
If the lender charges interest at a lower rate than the proper AFR, the IRS may reassess the lender and addimputed interestto the income to reflect the AFR rather than the actual amount paid by the borrower. Also, if the loan is more than the annual gift tax exclusion, it may trigger ...
Even though the bondholder does not receive interest income, they are still required to report the imputed interest on the bond to the IRS. Bond Basics To help explain one, let's first describe a bond. A bond is adebt instrumenttraditionally comprised of two parts, the face value (principal...