Form 1040 Schedule B – What You Need to Know

Form 1040 Schedule B – What You Need to Know so if you're a u.s taxpayer and you have any kind of investment income interest dividends when you're doing your 1040 you're going to, need this schedule right so schedule b interest and dividends it's pretty straightforward but there's a couple of things i want to highlight here um that are a bit nuanced that i see from time, to time but it's really important that you get them right um, so for this return it's going to be just a sample return we've got john q taxpayer up here so we've got a couple of of, the pages so first page of the 1040. everybody's familiar with that so if you skip down to your interest and dividend schedule, b we can go through some of these items so again some of this is. Very very straightforward if you've got any kind of interest income regular, bank interest things like that they just get listed here in part one so you know bank of america here so.

John q taxpayer has a bank of america savings account and in that account for the year here in 12 right so, bank of america sends him a 1099 int at the end of the year which reports uh the 12 in interest and, obviously it's got their name and info on there as well so, this one john also had a capital one bank account right so capital one they have savings account products or for um you know their customers as. Well so in this one he had a little bit more interest 500 for the year um and then again in this one charles schwab is his. Broker right so he's got a brokerage account with charles schwab um and within, that account for the year 205 in interest so again pretty you know nothing too unique here um but for this uh example i want to highlight nominee, interest right so um it is possible and it happens quite. Frequently for taxpayers that have accounts open that are in their name and the reporting is done under, their name and their social security number but the interest isn't theirs right there they've opened the account on behalf of somebody else that's a family member and so the, interest is actually due to that person so if you find if you, find yourself in that situation you're still required to, report the interest so we're taking the position that the capital one interest of 500 is nominee interest so you still have to report the 500 because they sent you a 1099 right it's under your name, your social security number so you report the full amount otherwise the irs's matching program might flag. It and you'll get a notice so you still report the interest but then you have a. Second line item down here under the subtotal where you enter the amount that's the nominee distribution to the the other individual right so 717 in, total interest reported to you um and then you back out to 500 so the, 217 is what's actually taxable to you um another thing to highlight you know this reporting in part one. Is taxable federal interest only so you know if you have let's say he has in his charles schwab account he has some investments in municipal bonds.

Right so municipal, bond interest is generally not subject to federal income taxes so you want to report that interest here but it does still get reported right so it gets reported on page one page one here we have tax-exempt interest. Income so he had 31 dollars in interest in his return for the. Year um and again it's reported here, and not on schedule b um and you also you notice here that it doesn't foot across right so you report it here and it's. Purely just kind of informational the taxable interest still remains the amount that was reported as that subtotal on on part one of schedule b okay, another thing to note um with the municipal bonds if you have uh investments in municipal bonds that are private. Activity bonds right so private activity bond interest is still generally not subject to federal, income taxes as long as it's a qualified bond but the interest again doesn't get reported here private activity. Bond interest is basically an ad bank for emt purposes so in this example um. You know that 30 some odd dollars in exempt interest he also had eight dollars in private activity bond interest so, where would you see that it wouldn't be here it wouldn't be on page one it would be on 6251 when you're doing your amt right if it does apply so line 2g here we have the interest, from specified private activity bonds um exempt from regular tax but they're. Added back for emt okay okay so moving on from interest um go to dividends so part two ordinary dividends um also kind of straightforward you. Know similar to part one you're just reporting um the source of the dividends. Or who did the reporting for you and then the amounts right so in this, example we're also saying that john q taxpayer the taxpayer here had his own c corporation right so he has a delaware c corp and during the year, um you know after the c corps paid taxes and it's filed its tax return it distributed a dividend to john of 2500. Right so he reports that all the same just as if he you know bought apple.

Stock or tesla or something like that and it was reported to him. Um it goes down on part two um line five right so um he reports his closely held corp there the. Amount of dividend and that's it national financial services so that's the broker the broker dealer for fidelity um so for those of you. Familiar with that you you know you see fidelities consolidated 1099 at the end of the year but the pay, your is actually national financial services so in this case he had 201 ordinary dividends and he put that down in part two, okay so one thing to really really be careful with is part three right so it says here in the, note if.

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