The interest you earn during the year is taxable income; the
deposits made to the savings account are not (they were
probably already taxed).

Your tax refund is based on your total taxable income and
total tax withheld and/or paid as quarterly estimates. It's
impossible to tell, based on the information provided, what
effect your interest earnings will have on your refund.

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"J. Holder" <james.holderX[at]gmail.com> wrote:

- quote -

I assume that by "income tax return" you mean the amount of
your money the government returns to you after having had
free use of it for up to a year. Also known as a "tax
refund."

Your bank balance does not directly affect your refund. The
interest on the account, however, will increase your income
and your income tax, all other things being equal. In that
case, if you do not change withholding, you will see a lower
refund or even tax due when you file.

--
D.F. Manno | dfmanno[at]mail.com

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J. Holder wrote:

- quote -

For interest like this you pay tax on the interest in the
year in which it's paid to you (credited to the account).
Keeping it in the bank or spending it, doesn't matter. If
this money is long term savings (say 10 years) you might
consider putting a portion into a stock index fund. Depends
what you intent is for these funds.

JOE

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"J. Holder" <james.hold...[at]gmail.com> wrote:

- quote -

The funds you have/put in bank interest bearing accounts
generally have no relation to the federal taxes you pay.
Only income earned from such deposits are taxable.

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"J. Holder" <james.hold...[at]gmail.com> wrote:

- quote -

If you mean will your tax liability be lowered the answer is
no. If you mean will your tax refund be lowered because you
have more than just the interest earned in your account the
answer is no.

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- quote -

Good for you.

- quote -

Right.

- quote -

No. The IRS doesn't care where you park your money.

Perhaps you've confused this account with an IRA. If you
had contributed the money to an IRA you could deduct it (up
to the annual contribution limit), but then of course you'd
be subject to the IRA rules when you take it out.

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"J. Holder" <james.holderX[at]gmail.com> wrote

- quote -

I'm not sure what you're asking, but I am sure the answer is
no.

You may have a few dollars in interest this year, that
amount may change your total taxes (by increasing it) which
would reduce your refund (if you were expecting one), but
that amount is in relation to the interest earned. If you
had $8000 in the bank for the entire year, it would only
earn $380 of interest, at the highest tax bracket (35%)
that's only $133 of tax. It's most likely that your numbers
are going to be much smaller.

But - the physical amount in the bank has no impact on your
refund amount.

--
Paul A. Thomas, CPA
Athens, Georgia

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"J. Holder" <james.holderX[at]gmail.com> wrote:

- quote -

you are correct you will only be taxed on the interest
earned no other effect on your tax return

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Hello guys. I have a few questions.

I have an online savings account (4.75%). Around this time
next year I should have about $16,000 saved up.

From what I read so far, the IRS will only tax me on
interest earned.

However, will my income tax return be lowered due to the
fact that I have the extra funds in the bank?

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >