Investing your money is one of the best ways to increase its value as you earn interest and dividends. Savings accounts, certificates of deposit, bonds, and peer-to-peer loans are all ways to earn interest by lending your money to banks. If you invest in stocks or private companies, you earn dividends.

That income doesn't come for free. There are taxes to pay. Those taxes are covered by IRS Schedule B.

You may need to file a Schedule B if you received interest or dividend income of more than $1,500. 

Schedule B from Form 1040 is titled "Interest and Ordinary Dividends" and must be completed and submitted along with your 1040 tax form if you earned income of the type stated in the title. Any interest or dividends received from investments, seller-financed properties, or banks must be included on this form so that it can be properly added to your taxable income.

What is Schedule B: Interest and Ordinary Dividends?

Using IRS Schedule B, American taxpayers can calculate income tax due on interest and dividends earned.

example of schedule b interest and ordinary dividends

Into your 1040 tax return, this schedule populates the correct figures from Forms 1099-INT and 1099-DIV. Dividends and interest earned during the year are reported on Schedule B.

It is not necessary to attach a Schedule B every year that you earn interest or dividends. Only when the total exceeds certain thresholds is a Schedule B required. A Schedule B is only required in 2021 if you receive more than $1,500 in taxable interest or dividends.

Who Needs to File Schedule B: Interest and Ordinary Dividends?

The IRS Form Schedule B is required to be filled out by Americans who receive more than $1,500 in taxable interest or dividends during the year.

On Schedule B, the taxpayer is required to provide the name of each payer (such as an investment firm or bank) and the amount of interest or dividends received from each payer.

Schedule B information is typically reported by the payer to the IRS, with a copy sent to the taxpayer, using form 1099-INT for interest and form 1099-DIV for dividends. Dividends and interest received by taxpayers must be reported to the IRS as taxable income.

How to Fill Out Schedule B

There are two pages in the Form: one for the actual form, and one for instructions. You will find information in the instructions on the types of interests you must include and any special rules applicable to them.

Forms are on page one of the Schedule. There are three main sections:

Part I: Interest

This is the section where you list the payer's name. Despite being divided by lines, you can list more than one payer per line, but you must clearly indicate the amount you received from each. Some examples of payers are banks and investment companies.

example of schedule b part 1 part i

If you sold a home and self-financed it for the buyer, you must include any interest you received. Be sure to include their Social Security number as well.

On the right side of this section, you should write the total amount received. Add these amounts and place the total on line 2.

When you own bonds and have earned interest on them, you subtract that amount from line 3. Bonds issued by the European Union or the United States after 1989 are not taxable.

Lastly, you write the total interest income in line 4. Your taxable income is the amount you received minus the interest you earned on bonds issued after 1989, as well as the amount you must include as earnings.

Part II: Ordinary Dividends

In this section, you follow the same steps from Part I, except for ordinary dividends.

example of schedule b part 2 part ii

Ordinary dividends include any income received from basic investments in companies that are not considered a qualified dividend and thus not subject to capital gains tax. Your company's 1099 statement indicates whether your dividends are ordinary or qualified.

On line 5, you list the payers' names and the amounts they paid. Next, you add up your earnings and enter the total on line 6.

Part III: Foreign Accounts and Trusts

You are required to complete Part III of the form if you received income from a foreign account or trust, or if you earned more than $1,500 in interest or dividends.

example of schedule b part 3 part iii

During this section, you are asked whether any of your income came from foreign sources. In that case, you must complete additional forms listing the types and amounts of foreign income you received.

In those cases where none of your income came from foreign sources, but you earned more than $1,500 in interest or dividends, you do not have to complete any additional forms, but are still required to complete the section.

Filing Your Taxes With Schedule B 

Transferring Totals to Your Tax Return

Even if you do not file a Schedule B, if you earn $1,500 or less in interest and dividend income during the year, you must pay tax on those amounts. Simply enter the total amount of dividends and interest payments directly on the appropriate line of your personal income tax return.

You should not see any difference in dividend and interest income on your 1099s and Schedule B when you complete it. It is therefore important that you verify that the amount you report on Schedule B matches the amount you report on your return.

Completing Your Tax Forms

Before you add your income information, be sure to read the directions for completing Schedule B. If you are uncertain how to properly state and calculate your interest and dividend income, seek financial advice from a professional accountant.

The Schedule B is a simple form, but don't be fooled: it's important - especially for taxpayers with foreign bank accounts or trusts.

You could be penalized and face interest if you fail to attach Schedule B to your tax return when you're required to.

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