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Posted by Damian Menscher on March 9, 2008, 9:57 pm
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>
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> > I have a small amount of money in a paypal account, and they put it
> > into a money market. So now I've got a couple bucks of income to
> > report. Since it's under $10, they didn't provide me with a 1099, so
> > I'm on my own to figure out how to report this. And I'm quite
> > confused. :)
>
> > Normally I'd expect this to be reported as interest. But looking at
> > my account history, I see they call this a "dividend" from the PayPal
> > Money Market. And digging further, their prospectus [1] says
> > dividends will be reported on a 1099-DIV which will distinguish
> > between dividends that must be treated as ordinary income and which
> > (if any) are long-term capital gain. So, assuming I don't care about
> > paying the higher tax rate on a dollar of income, it would seem this
> > should be reported on Sch. B as ordinary dividends, or possibly on
> > Sch. D as a capital gain distribution.
>
> > But looking to see what the difference is for something to be a
> > "qualified" dividend, I found Pub. 550, which says dividends paid on
> > deposits with a financial institution whould be reported as interest
> > income.
>
> > So, what am I supposed to do? Do I report this as interest, ordinary
> > dividend, qualified dividend, or a capital gain distribution? Or not
> > at all, since it's under the $10 minimum to generate a 1099?
>
> Money market accounts never generate capital gains -- the price of a
> share is always $1. So this would be either interest or dividends, and
> they're taxed identically.
Thanks. Digging deeper I've discovered this is something called a
Money Market Fund -- a mutual fund that invests in money markets. So
that resolves my confusion about whether it's a money market or a
fund. According to Pub. 564 it should be reported as a dividend, not
as interest. I'm still not clear on whether it is a qualified
dividend or an ordinary dividend, but I suspect the tax consequences
will be immeasurable anyway.
Damian
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