How to Fill Out Form 1040 Schedule B

Investment chart

Form 1040 Schedule B, titled "Interest and Ordinary Dividends" is an additional document you must complete and submit with your 1040 tax form if you earned the specific type of income the title states. You must include any interest and dividends received from investments, seller-financed properties or banks on this form so that it is properly added to your total taxable income.

What Is a Schedule B Form?

A schedule B form is similar to a worksheet. On it, you list the interest and dividend income you received and calculate the total taxable amount of income the Internal Revenue Service (IRS) taxes. You then transfer your calculations to your 1040 or 1040EZ form. It is designed to keep you organized and is not a substitution for your return.

If you earned any interest or dividends from investments you must complete the form and submit it with your tax return. Failing to include it with your return will not make your return incorrect or considered incomplete and, therefore, late. However, the IRS may request that you submit it before it processes your return, which may delay the time for you to receive any refund you are entitled to.

Completing the Form

The Form consists of two pages: one for the actual form and one for instructions. The instructions provide information on the specific types of interest you must include and special rules for them, if any.

The first page of the Schedule is the form you complete. It is divided into three main sections:

Part I: Interest

In this section you list the payer's name. Although divided by lines, you may list more than one payer per line, but must clearly indicate the amount you received from them. Examples of payers include banks and investment firms.

If you sold a home and self-financed it for the buyer, you must include any interest you received from the buyer in this section. You must also include their Social Security number.

To the right of this section you write the total amounts received. You then add these amounts and place the total on line 2.

If you own bonds and earned interest from them, you subtract the amount you earned in line 3. Interest earned on European Union or United States bonds issued after 1989 are not taxable.

Finally, in line 4 you write the total interest income. This is the income you received minus any interest earned on bonds issued after 1989, and the amount that you must include as earnings on your tax return.

Part II: Ordinary Dividends

This section consists of the same steps you completed in Part I, but for "ordinary dividends." Ordinary dividends include any income received from basic investments in companies and which are not classified as qualified dividends and thereby subject to capital gains tax. Your 1099 statement from the company states whether your dividends are ordinary or qualified.

In this section on line 5, you list the payer's names and the amounts you received. Next, add together your earnings and enter the number on line 6.

Part III: Foreign Accounts and Trusts

You must complete Part III of the form if you received income from a foreign account or trust or if either of your total earnings for interest or dividends exceeds $1,500. This section asks you whether any of your income derived from foreign sources. If it did, you must complete additional forms stating the types and amounts of foreign income you received. If none of your income derived from foreign sources, but you earned more than $1,500 in interest or dividends, you do not need to complete any additional forms, but must still complete the section as required.

Completing Your Form

Read the instructions for completing Schedule B before adding your income information. Seek legal or financial advice if you are uncertain how to properly state and calculate your interest and dividend income and submit it with your tax return.

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How to Fill Out Form 1040 Schedule B