IRS Publication 550 is a guide published by the IRS to provide information to taxpayers about how investment income and expenses are treated for tax purposes.
Learn what IRS Publication 550 covers, how it treats income and expenses from income, and how it can help you file your taxes.
Definition and Example of IRS Publication 550
IRS Publication 550 is an IRS guide to help taxpayers determine how to treat investment income and expenses on their tax returrns.
For example, if a taxpayer paid margin interest to their brokerage during the year, they can consult IRS Publication 550 to determine how to treat this interest on their tax return.
How IRS Publication 550 Works
IRS Publication 550 has five chapters. The first four chapters have to do with explaining the tax treatment of various forms of investment income and expenses, while the fifth chapter provides information on how taxpayers can get tax help.
Chapter 1: Investment Income
Chapter 1 covers the tax treatment of investment income such as:
- Interest income
- Original issue discount
- Dividend income
- Income from debt securities such as real estate mortgage investment conduits (REMICs), financial asset securitization investment trusts (FASITs), and other collateralized debt obligations (CDOs)
- Income from S corporations
- Income from investment clubs
Form 550’s interest income guidelines cover interest reported on forms 1099-INT and 1099-OID and address exempt-interest dividends, VA dividends, and individual retirement accounts.
Chapter 2: Tax Shelters and Other Reportable Transactions
Chapter 2 covers abusive tax shelters, which are investment schemes with little economic substance that are designed to generate tax deductions or credits for investors.
If the IRS deems a transaction to be an abusive tax shelter, it will disallow the tax benefits derived from the shelter.
In order to help itself uncover abusive tax shelters, the IRS requires taxpayers who have certain kinds of transactions during the year to report them on Form 8886.
Chapter 3: Investment Expenses
Chapter 3 covers the tax treatment of investment expenses such as:
- Investment interest expense
- Bond premium amortization
- Non-deductible interest expenses
Chapter 4: Sales and Trades of Investment Property
Chapter 4 covers key tax concepts pertaining to transactions involving investments (including property) such as:
- Establishing what constitutes a sale or trade of an investment
- Calculating one’s basis in investment property
- Calculating gain or loss on the sale of investment property
- How to account for transfers of investment property between spouses
- Calculating capital gains and losses
Chapter 5: How to Get Tax Help
Chapter 5 is not specific to Publication 550; it is found in several other IRS publications.
In this chapter, the IRS provides information to taxpayers about where they can get assistance with their tax returns.
Who Uses IRS Publication 550?
Taxpayers with investment income and expenses use IRS Publication 550 to determine how to treat these items on their tax return.
Tax professionals may also use IRS Publication 550 as they prepare clients’ tax returns.
Where To Get IRS Publication 550
There are multiple ways for taxpayers to get IRS Publication 550.
You can download it in PDF, HTML, or eBook format from the IRS website, and you can obtain it in-person from a local IRS Taxpayer Assistance Center.
Taxpayers can also obtain IRS Publication 550 by U.S. mail by submitting a request online or by calling 800-829-3676. Phone hours are Monday through Friday from 7 a.m. until 10 p.m. (local time, except for Alaska and Hawaii, whose residents should use Pacific Time).
How To Read IRS Publication 550
IRS publications are intended to be written in an easily-understandable manner.
It is important for taxpayers to understand that although IRS publications—including IRS Publication 550—are easy to read, they are not the ultimate authority when it comes to tax matters. They are simply the IRS’ application and plain-English explanation of the tax law.
- IRS Publication 550 is a guide the IRS has published on how to treat and report investment income and expenses.
- IRS Publication 550 is divided into five chapters. The first four chapters address specific tax issues pertaining to investment income and expenses. The last chapter gives general information on where taxpayers can get help with their tax returns.
- Like most IRS publications, IRS Publication 550 is written in easy-to-understand language.
- Taxpayers should keep in mind that the tax code and regulations, not IRS publications, are the ultimate authority on tax matters.