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Interest & Dividends

Understand taxable interest income sources like bank accounts, CDs, and bonds. Learn about dividends components such as ordinary and qualified dividends, capital gain distributions. Follow entry instructions for TaxWise software. Explore tax-exempt interest, federal vs. NJ returns differences, and treatment of interest and dividends on K-1 schedules.

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Interest & Dividends

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  1. 4491-08-B Income - Interest and Dividends v1.0 VO.ppt Interest & Dividends Pub 17, Chapter 7 & 8 Pub 4012, Tab D and Tab 2 LEVEL 1,2 TOPIC NJ Training TY2010 v1.0

  2. Taxable Interest Income • Income from banks and credit unions, CDs or bonds • Interest income is unearned income (money, not TP, is earning the income) • Report interest in year earned or, in case of bond purchased at discount, increase in value is taxable in year of increase • Make all interest entries on TaxWise “Interest Statement of Schedule B” NJ Training TY2010 v1.0

  3. 1099-INT 2008 NJ Training TY2010 v1.0

  4. Interest StatementFlows to 1040 Line 8a & 8b $$$$ 1099 - INT 1099 - OID $$$$ SPLIT INCOME – MFJ vs MFS Flows through Schedule B, Part 1 – if OVER $1,500 NJ Training TY2010 v1.0

  5. The Bank Statement 2008 NJ Training TY2010 v1.0

  6. Dividends • Main components of 1099-DIV Statement • Payer • Ordinary Dividends • Qualified Dividends (included in Ordinary Dividends) • Capital Gain Distribution • Federal Withholding Tax • Make all entries to Tax Wise “Dividend Statement for Schedule B” NJ Training TY2010 v1.0

  7. 1099-DIV 2008 NJ Training TY2010 v1.0

  8. DIVIDEND STATEMENT – Flows to 1040 Line 9 LEVEL 1 STOP HERE NJ Training TY2010 v1.0

  9. Interest – NAEOB • Nominee – Interest transferred to, and taxable to, 3rd party • Accrued – Interest accrued for bonds purchased between interest payment dates included in purchase price, not income • Exempt from Federal Tax – Interest on state, county or city bonds (political subdivisions) • OID – Interest received previously included in taxable income (rarely seen) • Bond – Amortized Bond Premium – Adjustment to total OID received • See IRS Pub 1212 for more detail LEVEL 2 TOPIC NJ Training TY2010 v1.0

  10. Tax Exempt Interest • Generally bonds issued by: • State/political subdivisions (county or city) • District of Columbia • U.S. possessions and political subdivisions • Savings bonds used for education (Form 8815) • All tax exempt interest must be reported on 1040, Line 8b NJ Training TY2010 v1.0

  11. Tax Free Interest • Interest from all State and Municipal Bonds are exempt from federal taxes • NJ bonds exempt from NJ taxes • Other States’ bonds are NOT exempt in NJ • Interest from U. S. Savings Bonds are exempt from NJ tax NJ Training TY2010 v1.0

  12. Original Issue Discount Interest (OID) ENTER AS ORDINARY INTEREST 2008 NJ Training TY2010 v1.0

  13. Taxable And Non-TaxableInterest & Dividends On Federal Returns • Interest • Input only taxable interest in Amount column • Input non-taxable interest by entering “E” and insert amount in NAEOB columns • Dividends • Input only taxable dividends in “Total dividends” column • Input non-taxable dividends in “Exempt int. div.” column NJ Training TY2010 v1.0

  14. Taxable And Non-TaxableInterest And Dividends On Federal vs NJ Returns • Step 1: • Input taxable and non-taxable amounts on respective worksheets for Federal purposes as noted on previous slide • Step 2: • If State tax treatment is different than Federal adjust for State by entries in State +/- Column NJ Training TY2010 v1.0

  15. Interest Statement ExamplesFlows to 1040 Line 8a & 8b $$$$ 1099 - INT 1099 - OID $$$$ SPLIT INCOME – MFJ vs MFS Flows through Schedule B, Part 1 – if OVER $1,500 NJ Training TY2010 v1.0

  16. DIVIDEND STATEMENT – Flows to 1040 Line 9 NJ Training TY2010 v1.0

  17. Interest & Dividends From Schedule K-1 • Schedule K-1 is in scope only if there are just Interest, Dividend, Capital Gains, or Royalties • Always check with Site Coordinator for all K-1s • Handling of Capital Gains and Royalties are covered in separate modules • Enter Interest and/or Dividends directly on Schedule B Worksheet, do not prepare or make entries on TW Form K-1 • Include “K-1” in Payer field NJ Training TY2010 v1.0

  18. Interest & Dividends From Schedule K-1 NJ Training TY2010 v1.0

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