Step-by-step instructions on how to fill Schedule B of Form 1040 to report Interest and Ordinary Dividends received during the tax year 2021.
Moreover, every taxpayer who receives more than $1,500 in taxable interest or dividends has to file Schedule B Form 1040. Schedule B helps to fill relevant amounts into Form 1040.
Table of Contents
What is Schedule B?
Schedule B is a part of Federal Income Tax Form 1040 that helps taxpayers to compute Interest and Dividends Income received during the year.
This schedule consists of the name of each payer as well as the amount of interest or dividends received from each payer.
It is easy to fill Schedule B as the payer reports these to the IRS through Forms 1099-INT for interest and Form 1099-DIV for dividends.
Furthermore, the IRS cross-checks the information provided by you on Schedule B. Non-reporting of such income can lead to penalties.
Who Must File Schedule B?
According to IRS, Use Schedule B (Form 1040) if any of the following applies:
- Have a taxable interest or ordinary dividends of $1,500.
- Received interest from a seller-financed mortgage and the buyer used the property as a personal residence.
- Have accrued interest from a bond.
- Reporting the original issue discount (OID) in an amount less than the amount shown on Form 1099-OID.
- Reducing your interest income on a bond by the amount of an amortizable bond premium.
- Claiming the exclusion of interest from series EE or I U.S. savings bonds issued after 1989.
- Received interest or ordinary dividends as a nominee.
- Have a financial interest in, or signature authority over, a financial account in a foreign country or you received a distribution from or were a grantor of, or transferor to, a foreign trust. Part III of the schedule has questions about foreign accounts and trusts.
Source: www.IRS.gov
Download Schedule B Form 1040
Click on the link below to download the form:
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How to Fill Schedule B Form 1040?
Here are the step-by-step instructions on how to fill out Schedule B of Form 1040. This section explains everything in detail.
Schedule B Part I – Taxable Interest Income
Following all the interest comes under the Taxable Interest Category.
Taxable Interest
Fill out all of your taxable interest at line 1 of Part I. Taxable interest should normally be reported on Forms 1099-INT, Forms 1099-OID, or alternative statements.
Moreover, you must include interest from U.S. savings bonds in series EE, H, HH, and I. You also need to include any accumulated market discount as well as any gain on a contingent payment debt instrument referred to as taxable interest.
List the name of the payer as well as the amount of each payment. Do not include any tax-exempt interest in this section.
Usually, most people obtain taxable interest from their savings accounts. Individuals investing in brokerage accounts receive ordinary dividends on their stock investments.
But, it is necessary to note this section doesn’t include the earning of dividends from tax-advantaged retirement funds. These dividends are tax-free until the withdrawal.
Interest Received as a Nominee
If you got a Form 1099-INT that included interest you received as a nominee, enter the amount on line 1. Do this even if you later gave part or all of your earnings to others.
To report such nominee interest, put a sum of all the interests stated on line 1 under your last entry on line 1. Enter “Nominee Distribution” below this sum to display the overall interest you earned as a nominee. Subtract this sum from the subtotal and enter the result on line 2.
Interest From a Seller-Financed Mortgage
Seller-financed mortgages, such as wraparound mortgages, are ones in which you directly issue a mortgage loan to a house buyer. The major exception here is that you only need to declare the interest if the property is the primary residence of the buyer.
In simple terms, if you sold a home or other property and the buyer utilized it as a personal residence, you must include any interest the buyer pays you on a mortgage or other kind of seller financing.
Make sure to provide the buyer’s name, address, and Social Security number. Failing to do will result in a $50 penalty by the IRS.
Accrued Interest from a Bond
When you purchase bonds between interest payment periods and pay accumulated interest to the seller, the seller gets taxed on the interest. We receive a Form 1099 for interest as a purchaser of a bond with accumulated interest. Similar to Nominee rules, Accrued interest will also be subtracted from the total interest.
Original issue discount (OID)
If you are reporting OID in an amount smaller than the amount specified in box 1 or box 8 of Form 1099-OID, the amount will be reported similarly to Nominee rules. However, identify the amount of OID deductions applicable.
Moreover, for any bond, if the payer reports a net amount of OID representing the offset of the gross amount of OID by any acquisition premium, no decrease in the amount of OID income reported to you by the payer may be required on Schedule B for the bond.
In short, the following will be the pattern of reporting Taxable Interest in Part I of Schedule B:
All Taxable Interest Income – Interest Received as Nominee – Accrued Interest – OID above which is reported on Form 1099-OID
Schedule B Part II – Taxable Ordinary Dividends
All of your regular dividends should be reported on line 5 of Part II. You can find this figure in box 1a of your Form 1099-DIV or equivalent statements.
If you got a Form 1099-DIV that included ordinary dividends you received as a nominee enter the sum on line 5. Do this even if you later gave part or all of your earnings to others.
Furthermore, sum up the number of ordinary dividends you have received as a nominee and name it Nominee Distribution. Subtract this from the subtotal and enter the result on line 6.
Schedule B Part III – Foreign accounts and trusts
Check the “Yes” box if you have a financial stake or you are a signatory power for a financial account in a foreign country at any point during 2021. Only use Part III if you have any involvement as mentioned above.
Moreover, if you answered “Yes” to Question 2 on line 7a, you must electronically submit FinCEN Form 114 with the Treasury’s Financial Crimes Enforcement Network.
Furthermore, if the aggregate value of foreign financial accounts reaches $10,000 at any point during 2021, a U.S. person with a financial interest in or signatory power over the accounts must complete the form otherwise not.
Do not submit FinCEN Form 114 with your tax return. If you are required to submit FinCEN Form 114, fill in the name of the foreign country or countries on line 7b. If you want extra space, attach an additional statement.
Moreover, you must give additional information if you received a dividend from a foreign trust. A loan of cash or marketable securities is often considered a distribution for this purpose.
Additionally, you may be required to file Form 3520 if you were the grantor or transferor to a foreign trust that existed in 2021. Similar to FinCEN Form 114, Form 3520 also should not be included with your tax return.
For more information about Schedule B, click the link below:
Instructions for Schedule B (2021)
Reporting of Interest and Ordinary Dividends on Form 1040
These amounts will be reported in lines 2b and 3b on Form 1040. It is necessary that the amount of dividend and interest income reported on your 1099s and Schedule B must be equal. Double-check the amounts before submitting your Tax Return.
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Disclaimer: This article is for information and educational purpose. Information provided here shall not be treated as tax advice. Kindly consult a tax expert before filing your tax return.