Expenses Income And - IRS Tax Forms

Distributions, for example) as an important partof your records.Net investment income tax (NIIT). You maybe subject to the NIIT. The NIIT is a 3.8% tax onthe lesser of your net investment income or theamount of your modified adjusted gross income(MAGI) that is over a threshold amount basedon your filing status.Filing StatusThreshold AmountMarried filing jointly 250,000Married filing separately 125,000Single 200,000Head of household (withqualifying person) 200,000Qualifying Widow(er) withdependent child 250,000For more information, see Form 8960, NetInvestment Income Tax—Individuals, Estates,and Trusts, and the Instructions for Form 8960.Tax on unearned income of certain children. Generally, a child must file Form 8615 ifthe child:1. has more than 2,200 of unearned income;2. is required to file a tax return;3. meets certain age/earned-income/self-support threshold;4. has at least one parent alive at the end ofthe year; and5. doesn’t file a joint return for the year.See Form 8615 and its instructions for details.However, the parent can choose to includethe child's interest and dividends on the parent's return if certain requirements are met.Use Form 8814, Parents’ Election To ReportChild’s Interest and Dividends, for this purpose.For more information about the tax on unearned income of children and the parents'election, see Pub. 929, Tax Rules for Childrenand Dependents.Beneficiary of an estate or trust. Interest,dividends, and other investment income you receive as a beneficiary of an estate or trust generally is taxable income. You should receive aSchedule K-1 (Form 1041), Beneficiary's Shareof Income, Deductions, Credits, etc., from the fiduciary. Your copy of Schedule K-1 (Form1041) and its instructions will tell you where toreport the income on your Form 1040 or1040-SR.Taxpayer Identification Number (TIN). Youmust give your name and TIN (either a Socialsecurity number (SSN), an employer identification number (EIN), or an individual tax identification number (ITIN)) to any person required byfederal tax law to make a return, statement, orother document that relates to you. This includes payers of interest and dividends. If youdo not give your TIN to the payer, you may haveto pay a penalty. In addition, if you do not provide a certified TIN on Form W-9, Request forTaxpayer Identification Number and Certifica-tion, the payer must backup withhold on your interest payments, at a rate of 24 percent.TIN for joint account. If the funds in a jointaccount belong to one person, list that person'sname first on the account and give that person'sTIN to the payer. (For information on who ownsthe funds in a joint account, see Joint accounts,later.) If the joint account contains combinedfunds, give the TIN of the person whose nameis listed first on the account. This is becauseonly one name and TIN can be shown on Form1099.These rules apply both to joint ownership bya married couple and to joint ownership byother individuals. For example, if you open ajoint savings account with your child usingfunds belonging to the child, list the child'sname first on the account and give the child'sTIN.Custodian account for your child. If yourchild is the actual owner of an account that isrecorded in your name as custodian for thechild, give the child's TIN to the payer. For example, you must give your child's SSN to thepayer of dividends on stock owned by yourchild, even though the dividends are paid to youas custodian.Penalty for failure to supply TIN. You willbe subject to a penalty if, when required, youfail to: Include your TIN on any return, statement,or other document; Give your TIN to another person who mustinclude it on any return, statement, or otherdocument; or Include the TIN of another person on anyreturn, statement, or other document.The penalty is 50 for each failure up to a maximum penalty of 100,000 for any calendar year.You will not be subject to this penalty if youcan show that your failure to provide the TINwas due to reasonable cause and not to willfulneglect.If you fail to supply a TIN in the manner required, you also may be subject to backup withholding.Backup withholding. Your investment incomegenerally is not subject to regular withholding.However, it may be subject to backup withholding to ensure that income tax is collected on theincome. The bank, broker, or other payer of interest, original issue discount (OID), dividends,cash patronage dividends, or royalties mustwithhold income tax on these reportable payments at a rate of 24% under backup withholding.Backup withholding applies if:1. You do not give the payer your TIN in therequired manner;2. The IRS notifies the payer that you gavean incorrect TIN;3. The IRS notifies the payer that you aresubject to backup withholding on interestor dividends because you underreportedinterest or dividends on your income taxreturn; or4. You are required, but fail, to certify thatyou are not subject to backup withholdingfor the reason described in (3).Certification. For new accounts paying interest or dividends, you must certify under penalties of perjury that your TIN is correct and thatyou are not subject to backup withholding. Yourpayer will give you a Form W-9, Request forTaxpayer Identification Number and Certification, or similar form, to make this certification. Ifyou fail to make this certification, backup withholding may begin immediately on your new account or investment.Underreported interest and dividends.You will be considered to have underreportedyour interest and dividends if the IRS has determined for a tax year that: You failed to include any part of a reportable interest or dividend payment requiredto be shown on your return, or You were required to file a return and to include a reportable interest or dividend payment on that return, but you failed to filethe return.How to stop backup withholding due tounderreporting. If you have been notified thatyou underreported interest or dividends, youcan request a determination from the IRS toprevent backup withholding from starting or tostop backup withholding once it has begun. Youmust show that at least one of the following situations applies. No underreporting occurred. You have a bona fide dispute with the IRSabout whether underreporting occurred. Backup withholding will cause or is causing an undue hardship, and it is unlikelythat you will underreport interest and dividends in the future. You have corrected the underreporting byfiling a return if you did not previously fileone and by paying all taxes, penalties, andinterest due for any underreported interestor dividend payments.If the IRS determines that backup withholding should stop, it will provide you with a certification and will notify the payers who were sentnotices earlier.How to stop backup withholding due toan incorrect TIN. If the IRS notifies a payerthat your TIN is incorrect, the payer must contact you and ask you to provide your correctTIN. Follow the instructions provided by thepayer to prevent or stop backup withholding.Reporting backup withholding. If backupwithholding is deducted from your interest ordividend income or other reportable payment,the bank or other business must give you an information return for the year (for example, aForm 1099-INT) indicating the amount withheld.The information return will show any backupwithholding as “Federal income tax withheld.”Nonresident aliens. Generally, paymentsmade to nonresident aliens are not subject tobackup withholding. You can use FormW-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholdingand Reporting (Individuals), to certify exemptstatus. However, this does not exempt you fromthe 30% (or lower treaty) withholding rate thatmay apply to your investment income. For information on the 30%-rate, see Pub. 519, U.S. TaxGuide for Aliens.Chapter 1Investment IncomePage 3

Table 1-1. Where To Report Common Types of Investment Income(For detailed information about reporting investment income, see therest of this publication, especially How To Report Interest Incomeand How To Report Dividend Income in chapter 1.)Type of IncomeIf you file Form 1040 or 1040-SR, report on .Tax-exempt interestLine 2a. (See the instructions there.)Taxable interestLine 2b (See the instructions there.)Savings bond interest you will exclude because of higher Schedule B; also use Form 8815education expensesQualified dividendsLine 3a (See the instructions there.)Ordinary dividendsLine 3b (See the instructions there.)Capital gain distributionsLine 7, or, if required, Schedule D, line 13. (See theinstructions of Form 1040 or 1040-SR.)Section 1250, 1202, or collectibles gain (Form 1099-DIV, Form 8949 and Schedule Dbox 2b, 2c, or 2d)Nondividend distributions (Form 1099-DIV, box 3)Generally not reported*Undistributed capital gains (Form 2439, boxes 1a–1d)Schedule DGain or loss from sales of stocks or bondsLine 6; also use Form 8949, Schedule D, and theQualified Dividends and Capital Gain TaxWorksheet or the Schedule D Tax WorksheetGain or loss from exchanges of like-kind investmentpropertyLine 6; also use Schedule D, Form 8824, and theQualified Dividends and Capital Gain TaxWorksheet or the Schedule D Tax Worksheet*Report any amounts in excess of your basis in your mutual fund shares on Form 8949. Use Part II if you held the sharesmore than 1 year. Use Part I if you held your mutual fund shares 1 year or less. For details on Form 8949, see ReportingCapital Gains and Losses in chapter 4, and the Instructions for Form 8949.Penalties. There are civil and criminal penalties for giving false information to avoidbackup withholding. The civil penalty is 500.The criminal penalty, upon conviction, is a fineof up to 1,000, or imprisonment of up to 1 year,or both.Where to report investment income. Table 1-1 gives an overview of the forms andschedules to use to report some common typesof investment income. But see the rest of thispublication for detailed information about reporting investment income.Joint accounts. If two or more persons holdproperty (such as a savings account, bond, orstock) as joint tenants, tenants by the entirety,or tenants in common, each person's share ofany interest or dividends from the property isdetermined by local law.Community property states. If you are married and receive a distribution that is communityincome, half of the distribution generally is considered to be received by each spouse. If youfile separate returns, you must each reportone-half of any taxable distribution. See Pub.555, Community Property, for more informationon community income.If the distribution is not considered community property and you and your spouse file separate returns, each of you must report your separate taxable distributions.Example. You and your spouse have ajoint money market account. Under state law,half the income from the account belongs toPage 4Chapter 1Investment Incomeyou, and half belongs to your spouse. If you fileseparate returns, you each report half the income.Income from property given to a child.Property you give as a parent to your child under the Model Gifts of Securities to Minors Act,the Uniform Gifts to Minors Act, or any similarlaw becomes the child's property.Income from the property is taxable to thechild, except that any part used to satisfy a legalobligation to support the child is taxable to theparent or guardian having that legal obligation.Savings account with parent as trustee.Interest income from a savings account openedfor a minor child, but placed in the name andsubject to the order of the parents as trustees,is taxable to the child if, under the law of thestate in which the child resides, both of the following are true. The savings account legally belongs to thechild. The parents are not legally permitted touse any of the funds to support the child.Accuracy-related penalty. An accuracy-related penalty of 20% can be charged for underpayments of tax due to negligence or disregardof rules or regulations or substantial understatement of tax. For information on the penalty andany interest that applies, see Penalties in chapter 2.Interest IncomeTerms you may need to know(see Glossary):Accrual methodBelow-market loanCash methodDemand loanForgone interestGift loanInterestMutual fundNomineeOriginal issue discountPrivate activity bondTerm loanThis section discusses the tax treatment of different types of interest income.In general, any interest that you receive orthat is credited to your account and can be withdrawn is taxable income. Exceptions to this ruleare discussed later.Form 1099-INT. Interest income generally isreported to you on Form 1099-INT, or a similarstatement, by banks, savings and loans, andother payers of interest. This form shows youthe interest you received during the year. Keepthis form for your records. You do not have toattach it to your tax return.Report on your tax return the total interestincome you receive for the tax year. See the Instructions for Recipient of Form 1099-INT tosee whether you need to adjust any of theamounts reported to you.Interest not reported on Form 1099-INT.Even if you do not receive a Form 1099-INT,you must still report all of your interest income.For example, you may receive distributiveshares of interest from partnerships or S corporations. This interest is reported to you onSchedule K-1 (Form 1065), Partner's Share ofIncome, Deductions, Credits, etc., and Schedule K-1 (Form 1120S), Shareholder's Share ofIncome, Deductions, Credits, etc.Nominees. Generally, if someone receivesinterest as a nominee for you, that person mustgive you a Form 1099-INT showing the interestreceived on your behalf.If you receive a Form 1099-INT that includesamounts belonging to another person, see thediscussion on Nominee distributions, later.Incorrect amount. If you receive a Form1099-INT that shows an incorrect amount (orother incorrect information), you should ask theissuer for a corrected form. The new Form1099-INT you receive will be marked “Corrected.”Form 1099-OID. Reportable interest incomealso may be shown on Form 1099-OID, OriginalIssue Discount. For more information aboutamounts shown on this form, see Original IssueDiscount (OID), later in this chapter.

Exempt-interest dividends. Form 1099-DIV,box 11, shows exempt-interest dividends from amutual fund or other regulated investment company paid to you during the calendar year. Seethe Instructions for Form 1040 or 1040-SR forwhere to report.Form 1099-DIV, box 12, shows exempt-interest dividends subject to the alternative minimum tax. This amount is included in box 11.See the Instructions for Form 6251.Interest on VA dividends. Interest on insurance dividends left on deposit with the Department of Veterans Affairs (VA) is not taxable.This includes interest paid on dividends on converted United States Government Life Insurance policies and on National Service Life Insurance policies.Individual retirement arrangements (IRAs).Interest on a Roth IRA generally is not taxable.Interest on a traditional IRA is tax deferred. Yougenerally do not include it in your income untilyou make withdrawals from the IRA. See Pub.590-B for more information.Taxable Interest—GeneralTaxable interest includes interest you receivefrom bank accounts, loans you make to others,and other sources. The following are somesources of taxable interest.Dividends that are actually interest. Certaindistributions commonly called dividends are actually interest. You must report as interestso-called “dividends” on deposits or on shareaccounts in: Cooperative banks, Credit unions, Domestic building and loan associations, Domestic savings and loan associations, Federal savings and loan associations,and Mutual savings banks.The “dividends” will be shown as interest income on Form 1099-INT.Money market funds. Money market fundsare offered by nonbank financial institutionssuch as mutual funds and stock brokeragehouses, and pay dividends. Generally, amountsyou receive from money market funds shouldbe reported as dividends, not as interest.Certificates of deposit and other deferredinterest accounts. If you buy a certificate ofdeposit or open a deferred interest account, interest may be paid at fixed intervals of 1 year orless during the term of the account. You generally must include this interest in your incomewhen you actually receive it or are entitled to receive it without paying a substantial penalty.The same is true for accounts that mature in 1year or less and pay interest in a single payment at maturity. If interest is deferred for morethan 1 year, see Original Issue Discount (OID),later.Interest subject to penalty for early withdrawal. If you withdraw funds from a deferredinterest account before maturity, you may haveto pay a penalty. You must report the totalamount of interest paid or credited to youraccount during the year without subtracting thepenalty. See Penalty on early withdrawal of savings, later, for more information on how to report the interest and deduct the penalty.Money borrowed to invest in certificateof deposit. The interest you pay on moneyborrowed from a bank or savings institution tomeet the minimum deposit required for a certificate of deposit from the institution and the interest you earn on the certificate are two separateitems. You must report the total interest youearn on the certificate in your income. If youitemize deductions, you can deduct the interestyou pay as investment interest, up to theamount of your net investment income. See Interest Expenses in chapter 3.Example. You deposited 5,000 with abank and borrowed 5,000 from the bank tomake up the 10,000 minimum deposit requiredto buy a 6-month certificate of deposit. The certificate earned 575 at maturity in 2020, but youreceived only 265, which represented the 575 you earned minus 310 interest chargedon your 5,000 loan. The bank gives you aForm 1099-INT for 2020 showing the 575 interest you earned. The bank also gives you astatement showing that you paid 310 interestfor 2020. You must include the 575 in your income. If you itemize your deductions on Schedule A (Form 1040 or 1040-SR), Itemized Deductions, you can deduct 310, subject to the netinvestment income limit.Gift for opening account. If you receive noncash gifts or services for making deposits or foropening an account in a savings institution, thevalue may be reported to you as interest income on Form 1099-INT and you may have toreport it on your tax return.For deposits of less than 5,000, gifts orservices valued at more than 10 must be reported as interest. For deposits of 5,000 ormore, gifts or services valued at more than 20must be reported as interest. The value is determined by the cost to the financial institution.Example. You open a savings account atyour local bank and deposit 800. The accountearns 20 interest. You also receive a 15 calculator. If no other interest is credited to youraccount during the year, the Form 1099-INTyou receive will show 35 interest for the year.You must report 35 interest income on your taxreturn.Interest on insurance dividends. Interest oninsurance dividends left on deposit with an insurance company that can be withdrawn annually is taxable to you in the year it is credited toyour account. However, if you can withdraw itonly on the anniversary date of the policy (orother specified date), the interest is taxable inthe year that date occurs.Prepaid insurance premiums. Any increasein the value of prepaid insurance premiums, advance premiums, or premium deposit funds isinterest if it is applied to the payment of premiums due on insurance policies or made available for you to withdraw.U.S. obligations. Interest on U.S. obligations,such as U.S. Treasury bills, notes, and bonds,issued by any agency or instrumentality of theUnited States is taxable for federal income taxpurposes.Interest on tax refunds. Interest you receiveon tax refunds is taxable income.Interest on condemnation award. If the condemning authority pays you interest to compensate you for a delay in payment of an award, theinterest is taxable.Installment sale payments. If a contract forthe sale or exchange of property provides fordeferred payments, it also usually provides forinterest payable with the deferred payments.Generally, that interest is taxable when you receive it. If little or no interest is provided for in adeferred payment contract, part of each payment may be treated as interest. See UnstatedInterest and Original Issue Discount (OID) inPub. 537.Interest on annuity contract. Accumulatedinterest on an annuity contract you sell beforeits maturity date is taxable.Usurious interest. Usurious interest is interestcharged at an illegal rate. This is taxable as interest unless state law automatically changes itto a payment on the principal.Interest income on frozen deposits. Exclude from your gross income interest on frozendeposits. A deposit is frozen if, at the end of theyear, you cannot withdraw any part of the deposit because: The financial institution is bankrupt or insolvent, or The state in which the institution is locatedhas placed limits on withdrawals becauseother financial institutions in the state arebankrupt or insolvent.The amount of interest you must exclude isthe interest that was credited on the frozen deposits minus the sum of: The net amount you withdrew from thesedeposits during the year, and The amount you could have withdrawn asof the end of the year (not reduced by anypenalty for premature withdrawals of a timedeposit).If you receive a Form 1099-INT for interest income on

1212 Guide to Original Issue Discount (OID) Instruments. Form (and Instructions) Schedule B (Form 1040 or 1040-SR) Interest and Ordinary Dividends. Schedule D (Form 1040 or 1040-SR) Capital Gains and Losses. 1040 U.S. Individual Income Tax Return and . 1040-SR U.S. Income Tax Return for Seniors. 1099 General Instructions for Certain Information .