Phantom Income

AAA

DEFINITION of 'Phantom Income'

Income paid to a taxpayer during the tax year that is not constructively received at the taxpayer's end. Phantom income is not terribly common, but does manifest itself in such investments as limited partnerships, where the earnings are taxed but not received, and zero-coupon bonds, which are issued at a discount and mature at par. The interest payments for zeros are credited to the taxpayer but no check is actually cut for them. The bondholder effectively receives the payments at maturity, when the bond is redeemed at the higher par value.

INVESTOPEDIA EXPLAINS 'Phantom Income'

Loan forgiveness is another form of Phantom Income. The creditor essentially "pays" the delinquent borrower the amount of debt forgiven, which is why creditors send Form 1099-C to the borrow showing the amount of "income" that he or she received as forgiven debt. For obvious reasons, Phantom Income is something most taxpayers generally tend to eschew if at all possible. Unfortunately, Phantom Income is unavoidable in some cases.

RELATED TERMS
  1. Income

    Money that an individual or business receives in exchange for ...
  2. Income Inequality

    The unequal distribution of household or individual income across ...
  3. Exemption

    A deduction allowed by law to reduce the amount of income that ...
  4. Income Tax

    A tax that governments impose on financial income generated by ...
  5. Negative Income Tax - NIT

    A guaranteed minimum income plan advocated by economist Milton ...
  6. Taxes

    An involuntary fee levied on corporations or individuals that ...
Related Articles
  1. 10 Money-Saving Year-End Tax Tips
    Taxes

    10 Money-Saving Year-End Tax Tips

  2. Use Duration And Convexity To Measure ...
    Bonds & Fixed Income

    Use Duration And Convexity To Measure ...

  3. Are long-term U.S. government bonds ...
    Investing

    Are long-term U.S. government bonds ...

  4. Where can I buy government bonds?
    Investing

    Where can I buy government bonds?

comments powered by Disqus
Hot Definitions
  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center