What does a million dollars in the bank do to your taxes?

Imagine that someone gives you or you win more than a million dollars. You pay the inheritance/gift/prize tax and you now have an even 1 mil in your bank account.


A) How does it affect your taxes if you let it just sit there?


B) What if you invest it by buying 1 mil worth of high yeild CDs?


C) Does this send out a red flag that makes you more likely to be audited?

What does a million dollars in the bank do to your taxes?
A), Unless it earns interest or dividends, it won't affect your taxes. If it does earn interest or dividends, the amount you are paid annually must be claimed on your taxes.





B) Depending on the maturity of the CD's, you'll have to claim interest in the year that is expensed to you. If you hold a CD less than 12 months, you have to treat it as the same tax rate as your normal income. If you hold it longer that 12 months (I think it's now 12, used to be 18 so you'd need to double check) it is treated as a capital gain, which is usually between 10 - 18% and often lower than regular income





C) Absolutely Not! If you have money in the bank that has already had taxes paid on it, the IRS will not have a record of that. They will have a record only of any interest or dividends that are paid by the bank (and reported to the IRS).





Hope that helps.
Reply:I guess you are not aware of what the current interest rates are on bank accounts and CDs. At 4% that yields only 40,000 in interest. Peanuts. The IRS would not even look twice at it. No reason to. The only thing that might possibly produce an audit is if you were to invest it in the stock market and generate a significant amount of capital gains. They might want you to prove your initial cost of the investments.
Reply:It doesn't. You don't pay tax on savings accounts unless you don't pay your income taxes out of your payday. You will pay taxes on the CDs though.
Reply:you will owe taxes on the interest uness you are holding municipal bonds................