Schedule B is another complex addition to your personal tax return. When these complicated issues arise, you really see the necessity of a tax preparation service like TaxBrain.com. No one wants to spend hours figuring intricate tax subjects; however, you also do not want to get audited for inaccurate information.
You must attach schedule B to your form 1040 if, for the tax year, you earned over $1,500 in taxable interest, earned over $1,500 in ordinary dividends, you received ordinary dividends as a nominee, you meet the special rules as defined by the IRS, you had a foreign account or received a distribution from a foreign trust, or you are claiming the interest exclusion on series EE or I U.S. savings bonds.
Interest
For the most part, all interest you receive is taxable interest. Interest on savings accounts, money market accounts, and insurance dividends are types of taxable interest. Series EE and I U.S. savings bonds are typically not taxable until the year they are redeemed, mature, or disposed of. There are also circumstances in which interest from bonds may be excluded from income, such as if they are used for higher education.
Debt instruments that are purchased at a discount may have to be claimed as interest on schedule B.
You must also report any tax exempt interest payments you receive during the year. While these are not taxable, they are required for reporting purposes. They will not be included in your income.
Dividends
Dividends are actually another form of interest. This includes dividends from credit union accounts, cooperative banks, and savings and loan associations.
You are responsible for reporting any interest you earn, even if you do not receive a 1099 form. However, you should receive a 1099-INT, 1099-OID, or similar statement for reporting purposes. You should always keep accurate records to support any claims you make on your taxes. The only thing worse than getting audited is doing so and not being prepared.
As stated earlier, you must attach schedule B if you earn over $1,500 in taxable interest or $1,500 in ordinary dividends. If you earn less than this amount, you may simply include the amount on your 1040 without attaching schedule B. There are also certain circumstances in which interest income would bar you from filing a form 1040A or 1040EZ. You should be aware this may be an issue you face at some point if you receive taxable interest.
When you receive statements form your bank or credit union, it is sometimes fairly easy to overlook the interest and dividend portion of the statements. However, it is important that you claim all taxable interest, ordinary dividends, and other sources of income. Even the tiniest amounts are supposed to be reported. The last thing you want to do is get in trouble with the Internal Revenue Service over a minimal amount of income. Although it is probably unlikely you will get in too much trouble over a tiny amount, you may be required to file an amendment.