In the thick of tax season, it can be overwhelming to navigate all the tax forms and schedules produced by the IRS. And they expect you to use them all correctly.
Avoiding tax mistakes can feel like tip-toeing through a snake pit. Do you have all your documents? What forms should you fill out? It’s honestly why many taxpayers just opt to get a tax attorney to do the task for them.
Are you wondering about Schedule B tax resources? If you have any investments, then it can get even more complicated. Schedule B is often needed in this case.
When do you use the Schedule B form? What does Schedule B report to the IRS? What forms are needed to complete Schedule B?
Here’s your complete guide to everything you need to know about Schedule B and using it to file your tax returns. Read on to learn more.
What Is Schedule B?
Most Americans who file their taxes will use Form 1040 or Form 1040-SR. This is the main IRS tax filing document.
To complete this tax document, taxpayers will use a variety of other forms and schedules, including Schedule B.
There are a few different times when you’d need to complete the Schedule B form. Most Americans will use it to report interest income and/or ordinary dividends they have received over the course of the year.
Schedule B can also be used to report other forms of corporate distribution or interest from some other sources.
Purpose of Using Schedule B
There are certain times when the IRS will expect you to use Schedule B. They will also expect you to report the income and skip using Schedule B.
Here are some times they expect you to use this schedule:
- Over $1,500 of taxable interest or ordinary dividends
- Accrued interest from a bond
- Received interest or ordinary dividends as a nominee
- Have a financial interest in, or signature authority over, a financial account in a foreign country
- Received a distribution from, or were a grantor or transferor to a foreign trust
- Received interest from a seller-financed mortgage where the buyer used the property as a personal residence
Employers are required to withhold certain amounts for federal income tax, social security tax, and Medicare tax. Employers must pay the liability on their share of social security and Medicare taxes.
Some employers pay this weekly, monthly, or quarterly. Depending on how they pay, it will also depend on how they also use a form of Schedule B to report this to the IRS.
It’s good to remember that Schedule B helps to report income from outside sources that are not your salary from your employer. There are several other times when you should use Schedule. If you’re unsure, you should hire a tax attorney.
Understanding What to Report Using the Schedule B
The Schedule B form breaks down payments into three categories, including interest, dividends, and foreign trusts. Let’s take a closer look at how the IRS defines these categories.
The first section of Schedule B and the most commonly used section is the Interest section. The interest categories get broken down into the following groups:
- Seller-Financed Mortgages
- Accrued Interest
- Original Issue Discount
- Amortizable Bond Premium
- Tax-Exempt Interest
The IRS provides additional information in Publication 550 and Publication 1212 on stated interest, original issue discount (OID), market discount, contingent payment debt instruments, and premiums.
Regularly scheduled payments that get made to shareholders from a company are called ordinary dividends.
Companies will pay a dividend that comes from their profits. These are the profits they aren’t using to reinvest back into the company. A company might pay an ordinary dividend, a special dividend, or a stock dividend.
The money from these dividend payments counts as income for a taxpayer and is therefore reported using the Schedule B form.
Foreign Accounts and Trusts
This section of Schedule B covers foreign accounts. It covers accounts for those financial accounts that are actually located in foreign countries and don’t have branches inside the US.
You would include assets if you have signature authority over assets in a foreign land. This means you have the authority to control the disposition of assets.
Who Should File Using Schedule B
Any taxpayer over the $1,500 tax limit in interest or dividend payments must use the Schedule B form. On Schedule B, you’ll provide:
- The name of each payer (such as an investment firm or bank)
- The amount of interest or dividends received from each payer
What you’re reporting in your forms to the IRS is also reported by those paying you the interest and dividends when they file the appropriate tax forms, often a 1099-INT.
You should consult with your IRS tax attorney for more complex uses for the Schedule B form.
How to Fill Out Schedule B
Your tax attorneys will know how and when to approach using the Schedule B form. The Schedule B form is available on the IRS website for download if you plan to work on this independently.
As a reminder, you should not use the Schedule B form to report tax-exempt interest. This tax-exempt interest gets reported on Form 1099-INT.
The Schedule B form labeled Interest and Ordinary Dividends is divided into the three sections already covered:
- Ordinary Dividends
- Foreign Accounts and Trusts
The Interest section has lines 1 through 5. In section 1, there are multiple lines of space for you to list the payer of any qualified interest. Then to the right of the payer, you list the amount paid.
Line 2 of this section asks you to total up all of the amounts listed in line 1 and write the total in the box.
Line 3 asks you to list any excludable interest from EE and I US savings bonds.
Line 4 has you subtract line 3 from line 2. The total from Line 4 is then entered on Form 1040 or Form 1040-SR on line 2B.
This section uses lines 5 and 6 of the Schedule B form. It covers the dividends that were paid to you.
It’s likely these dividends were reported to you using Form IRS 1099-DIV. More on this later.
In line 5, you will list the payer you received dividends from. To the right of the payer, you will list the amount you received in dividends.
Line 6 asks you to total up all dividend payments. Line 6 is then entered on Form 1040 or Form 1040-SR on line 3B.
Foreign Accounts and Trusts
This section uses lines 7a, 7b, and 8. The section asks you a series of yes and no questions as it relates to payments.
Line 7a asks if, during any of the taxable year, did you have a financial interest or a signature authority of a financial account that was located in a foreign country.
If you answer yes, you will need to list the country in line 7b. You will then also need to complete the FinCEN Form 114.
Line 8 addresses foreign trusts. It asks if during the year you were a grantor or a transferor of a foreign trust or did you receive a distribution form for a foreign trust.
If you answer yes in line 8, then you must complete and file Form 3520.
Common Forms Used With Schedule B
There are several IRS forms that are often connected to the use of the Schedule B form. Let’s take a closer look at some of those forms and their purpose.
IRS Form 1099-DIV
IRS Form 1099-DIV refers to the form used by banks and other financial institutions to inform you of dividends and distributions from any type of investment you received during the previous calendar year.
You can receive multiple 1099-DIV forms if you have multiple investments. It’s not that likely that a financial institution will send you this form if the dividend paid is less than $10.
In most cases, you’ll report this dividend income on the Schedule B form, although there are a few instances where it can go directly onto your 1040 tax form. It’s wise to consult with your tax attorney on the best route to report this form.
IRS Form 1099-INT
IRS Form 1099-INT is the form used by anyone who paid you interest in any of the forms during the previous calendar year. If you got paid at least $10 in interest, this form must get used by brokerage firms, banks, mutual funds, and other financial institutions.
Again, if you have interest-bearing investments, you shouldn’t be surprised to receive multiple 1099-INT forms.
It should be noted that with both 1099-DIV and 1099-INT forms, the institutions that issue them to you must also send a copy to the IRS. So, the IRS is already aware of these payments and will expect you to report them in your taxes.
IRS Form 1099-OID
IRS Form 1099-OID stands for Original Interest Discount. Original Discount Discount refers to an excess of an obligation’s stated redemption price over the life of the investment.
You would have an OID included if you have:
- A bond
- Note, certificate
- Other evidence of indebtedness
This would apply if you had them for a term of more than a year.
Form 114 is used to report a financial interest in or signature or other authority on accounts that are located outside of the US. These forms are required if their aggregate value exceeds $10,000 at any time during the calendar year.
Form 3520 is used if you as a US taxpayer have transactions with a foreign trust. IRS sections 671 through 679 outline the rules for foreign ownership of a trust.
You would also use this form if you received a large bequest or gift from a foreign person.
Hire a Tax Attorney to Help You
If you need to use the Schedule B form to report interest, ordinary dividends, or foreign trust accounts, you want to do it correctly so as not to raise the interest of the IRS.
It’s not at all uncommon for a taxpayer to need to complete multiple Schedule B forms and then put totals on their Form 1040.
If you have a more complex tax filing that requires many schedules, it might be wise to seek the services of qualified tax attorneys. The money invested in using a knowledgeable tax consultant is money well-spent, so your taxes get done right, and you avoid an audit.
Schedule B, Form 941 for Employers
The IRS might trip you up if you file your personal taxes and need to use the Schedule B form to report interest, dividends, or trusts. The IRS also uses Schedule B, Form 941 for businesses.
Form 941 is part of the IRS payroll form series. This form handles employee pay information, including information reporting on:
The Schedule B part of this series specifically for employers deals with federal income tax, social security tax, and Medicare tax withheld from the employee’s pay.
Employers who practice semi-weekly schedule depositors must complete Schedule B, Form 941.
An employer would know they’re a semi-weekly schedule depositor if they:
- Report more than $50,000 in employment taxes within the lookback period
- Accumulated tax liability of $100,000 during any of the current or prior calendar year
The IRS requires this form of employers as it allows them to monitor that the employer has deposited their tax liabilities on time.
Use the Schedule B Tax Resources
First and foremost, it’s essential you correctly file the schedule B tax resources on your tax returns correctly. It’s important to remember that anyone who paid you interest or dividends also reported those to the IRS.
The IRS will expect you to be accountable for that income.
Consider seeking the assistance of experienced tax attorneys to guide you through your tax planning and tax filing season. At the Silver Tax Group, we have the experience you need to get your taxes done right. Contact us today so we can start helping you.