Schedule B: box-by-box
If your investments really paid off last year,
the Internal Revenue Service wants to know. And depending on just
how much you earned from your savings accounts, stocks and bonds,
certificates of deposit or mutual funds, you might have to report
that income on Schedule
B. (If you received a form printed by the IRS, you'll find Schedule
B on the back of Schedule A.)
Thanks to an increase in the reporting requirements,
fewer filers have to fill out Schedule B . Previously, you had to
fill it out when you had interest income of more than $400; the
same was true for $400 or more in dividend income from your stocks
or mutual funds. Now you don't have to send Schedule B with your
taxes if your interest and dividend earnings are $1,500 or less.
You can just put the amounts directly on your 1040.
This new earnings limit is applied separately
to interest and dividend income. So if you received only $500 in
interest and your stocks paid $1,200 in dividends, you don't have
to file Schedule B even though your investment income total comes
to $1,700. But if either category alone exceeds the $1,500 threshold,
you must report the amount on the form's appropriate line and send
it to the IRS.
Of course, to see if you need to file Schedule
B, you'll have to tote up the amounts from all your 1099-INT and
1099-DIV forms. Since Schedule B is designed for this information,
why not go ahead and use it? But don't file it with your 1040; simply
keep it as part of your personal
And the IRS still requires you file Schedule
B if any of the following apply to you:
- You sold your home or other property, provided
seller financing and the buyer used it as a personal residence.
- You received interest or dividends as a nominee,
that is, the earnings are in your name but they actually belong
to someone else.
- You received a Form 1099 for interest as
a purchaser of a bond with accrued interest.
- You received a Form 1099-INT for tax-exempt
- You had a foreign account or received a distribution
from a foreign account.
Now that you've determined that you must complete
Schedule B, let's get to it. It begins the same way as most IRS
forms. First, enter your name and Social Security number.
Now we go to the meat of the form: reporting
your unearned income.
Part I, Interest
Most or all of your interest income earned will be reported
on 1099-INT forms. You and the IRS each get copies from your bank
or other financial institutions, so it's important that you report
all your interest income in Part I. If you don't, you can bet that
a tax examiner will come to you with questions about the oversight.
List each payer and the amounts received on
line 1, which actually is several lines to give you plenty of room
to list all your interest-paying accounts. If you sold your home
or other property, provided seller financing and the buyer used
the property as a personal residence, your first entry on line 1
should be the interest amount earned from that transaction. Don't
forget to include the buyer's name, address and Social Security
Following that interest entry, list all your
other interest-bearing accounts in the line 1 section, along with
amounts you received. If you need more space, attach a separate
page with the details.
Line 1 is also where you would report any nominee
interest you got. You're a nominee on an account if it's in your
name, but the interest actually belongs to someone else. Don't worry.
You'll be able to eliminate this nominee interest from your tax
calculations in a moment.
But if you pass that money along to its rightful
-- and taxable -- owner, why do you have to report it on Schedule
B? Because the interest earning account is in your name and tax
ID. The IRS already has a copy of the nominee money you got and
if you don't account for it when you file your tax return, you'll
hear from the IRS. That's why when you do distribute this interest,
you must give the actual owner a Form 1099-INT and let the IRS know
you transferred the money by filing a Form 1096.
After you've entered all your interest (including
nominee amounts) subtotal it, still within the line 1 area.
Below this subtotal, write "Nominee Distribution"
and show the total interest you received as a nominee. Then subtract
this amount from the subtotal.
If you received any tax-exempt interest (again,
it should be noted on the 1099 statement you received), follow the
rules for nominee interest. In this case, identify the amount to
be subtracted as "Tax-Exempt Interest." And don't forget
to include this tax-exempt interest on your Form
1040, line 8b.
OK, you've got all your various interest amounts
entered, with the portions not taxable to you subtotaled and subtracted.
Now enter the final interest income that you are responsible for
on line 2.
Savings bond interest
Some interest is not taxable, but the IRS still wants to know
about it on line 3. This is the case for series EE or I savings
bonds that were issued after 1989.
If you used these bond proceeds to pay qualified
higher education expenses for yourself, your spouse or your dependents
then you may be able to exclude part or all of the interest those
bonds earned. You'll need to fill out Form
8815 and then transfer the amount of bond interest you don't
have to pay taxes on to line 3 here. (Don't forget to attach Form
8815 to your 1040 when you file.)
Then subtract line 3 from line 2. This amount,
your taxable interest income, goes on Schedule B's line 4 and also
on line 8a of your 1040. If interest is the extent of your unearned
income, you're through with Schedule B.
But if you also got dividend income, move on
to Part II.
Part II, Ordinary Dividends
As with interest income, you must file Schedule B if you received
more than $1,500 in ordinary dividends. Dividend earnings are from
your mutual fund accounts or individual stock holdings and are reported
to you on 1099-DIV statements. These amounts (which also are copied
to the IRS so be thorough) go on Part II of the schedule.
On line 5 (multiple lines like the form's interest
counterpart), enter your dividend sources and amounts. Again, if
you need more space, attach a separate sheet with the pertinent
The rules for reporting dividends you received
as a nominee are the same as for nominee interest payments. Once
you've entered all your dividend income and subtracted out any nominee
dividends, enter the result on line 6.
Also put the line 6 amount on line 9a of your
Part III, Foreign Investment Income
Because of concerns about potentially abusive tax shelters in
other countries, the IRS wants to know about your foreign investing.
That's the reason for Part III, foreign accounts and trusts. And
since tax shelters tend to be used primarily by people with lots
of investment income, the IRS wants you to complete this section
if you reported more than $1,500 in either Part I or II.
Line 7a is straightforward. Basically, if you
had a foreign account, check "Yes" here. Even if you did
have such an account, the IRS says you can check "No"
if the average balance in the account was less than $10,000 during
the whole year.
If you do answer "Yes" to 7a, then
you'll also have to file Form
TD F 90-22.1, Report of Foreign Bank and Financial Accounts,
by June 30. And you must put the name of the foreign country where
the account is located on line 7b.
Line 8 wants to know if you were financially
involved in a foreign trust account. In this case, loans from such
a trust count as a distribution so you must check "Yes"
here. If so, you also have to complete Form
3520 or Form
If you have a lot of foreign accounts, you probably
also have a tax adviser and accountant to take care of your affairs.
These professionals will explain any additional forms you need for
Part III, as well as what they entered in Parts I and II, when you
go to sign your tax return.
The great majority of us who file Schedule B,
however, don't have to worry about Part III complexities. We simply
have to report our interest or dividend income on this one-page
Michele Erbrick assisted with this
-- Updated: Feb. 9, 2004