1. TAX-AIDE Interest and Dividend Income Form 1040Lines 8-9 Pub 4012D-7 to 8 Pub 4491Page 64 NTTC Training 20131

2. TAX-AIDE The Interview ● A conversation NTTC Training 20132

3. TAX-AIDE The Interview – A Conversation ● Prior year’s return ● Forms 1099-DIV, -INT, -OID, or substitute Organize them by type If many, alphabetize for easier input and easier for quality review ● Forms K-1 (limited) – see K-1 lesson NTTC Training 20133 Use the correct year forms, usually 2013!

4. TAX-AIDE Limitations on Scope – 1099-INT ● Any of these codes needed on the Interest Statement? N – Nominee A – Accrued Interest O – Original issue discount adjustment B – Bond premium amortization adjustment ● Only “E” – exempt interest is in scope NTTC Training 20134

5. TAX-AIDE Limitations on Scope – 1099-DIV Review Forms 1099-DIV for out-of-scope: Box 2c Sec. 1202 gain (small business stock) Boxes 8 or 9 – Liquidating distributions NTTC Training 20135

6. TAX-AIDE Limitations on Scope – 1099-INT or 1099-DIV Would Alternative Minimum Tax be generated? (out-of-scope) ● Look for PAB amounts 1099-INT box 9 1099-DIV box 11 ● Advise client that if AMT applies, cannot prepare return NTTC Training 20136

7. TAX-AIDE Limitations on Scope – 1099-INT or 1099-DIV Would there be any Net Investment Income Tax? (out-of-scope) ● Applies only if Adjusted Gross Income is more than: MFJ or QW: $250,000 MFS: $125,000 Single or HoH: $200,000 NTTC Training 20137

8. TAX-AIDE Limitations on Scope – Brokerage Accounts Investment interest expense – what is it? ● Interest paid on borrowings to purchase or carry investments ● Possibly deductible on Sch A, but requires Form 4952 ● Form 4952 is out of scope NTTC Training 20138

9. TAX-AIDE Limitations on Scope – Brokerage Accounts Investment interest – where do I find it? ● On brokerage statement, look for “other information” ● Interest on margin is investment interest  If itemizing deductions, return is out of scope  If not itemizing deductions, can prepare return NTTC Training 20139

10. TAX-AIDE Limitations on Scope – Foreign Accounts Additional required reporting ● Foreign Bank or Financial Accts At any time during the year the value of all reportable accounts is more than $10,000 ● Return can be in scope ● Sch B Part III questions must be answered correctly  Client would need to file their own Form FinCen 114 (old TD 90-22.1) NTTC Training 201310

11. TAX-AIDE Limitations on Scope – Foreign Accounts ● Bottom of Sch B – Part III NTTC Training 201311

12. TAX-AIDE Limitations on Scope – Foreign Accounts Additional required reporting ● Foreign trusts and foreign gifts ● Return can be in scope ● Sch B Part III questions must be answered correctly  Client would need to file their own Form 3520 NTTC Training 201312

13. TAX-AIDE Limitations on Scope – Foreign Accounts Additional required reporting ● Specified Foreign Financial Assets ● If the value of all reportable assets exceeds $75,000 ($150,000 MFJ) at any time during the year OR $50,000 ($100,000 MFJ) at the end of the year  Return is out of scope – we cannot prepare Form 8938 NTTC Training 201313

14. TAX-AIDE Foreign Interest Income Case Study ● Case study: Client has statement from DeutscheBank showing interest income from a EuroAccount deposit ● Statement shows U.S. $ and Euros € ● What should you do? NTTC Training 201314

15. TAX-AIDE Interest Income What Is It? ● Earnings on Bank, savings, and credit union deposits Certificates of Deposit Bonds (corporate or government) Money loaned out NTTC Training 201315

16. TAX-AIDE Interest Income – What Is It? ● It is not earned income Money, not a person, is earning the income ● Reported in year earned Usually when posted to account NTTC Training 201316

17. TAX-AIDE Interest Income – What Is It? ● Bonds can be purchased at a discount or with a premium The discount is additional interest income The premium is a reduction of interest income ● Both amortized over the life of the bond  Payer does the math (we cannot) NTTC Training 201317

18. TAX-AIDE Where to Find Interest Income ● Form 1099-INT ● Substitute 1099-INT (e.g. brokerage stmt) ● Schedule K-1 (see K-1 lesson) ● No tax form from payer Seller financed mortgage interest income Private or foreign payer Interest less than $10 NTTC Training 201318

19. TAX-AIDE Interest Income ● Whether or not reported by the payer on a tax form, all interest must be included in the return Taxable OR Exempt  Other calculations can be impacted NTTC Training 201319

20. TAX-AIDE Interest Income ● All interest is taxable except interest from State or municipal obligations, includes  D.C.  U.S. possessions  See Pub 4491 page 65 for others ● U.S. obligations (T-Bills, Savings Bonds, etc.) are fully taxable for federal tax* *may be exempt from state tax NTTC Training 201320

21. TAX-AIDE Interest Income ● Investment expenses related to interest income Deductible if itemizing deductions Sch A line 23, subject to 2% threshold e.g. account management fee  More on deductions in Lesson 21 NTTC Training 201321

22. TAX-AIDE Interest Income The Tax Form NTTC Training 201322

23. TAX-AIDE Interest Income ● Excerpt from sample brokerage statement The Tax Form NTTC Training 201323

24. TAX-AIDE Entering Interest Income ● Always use Interest Stmt* ● Select in Forms Tree *except for seller financed interest income NTTC Training 201324

25. TAX-AIDE Entering Interest Income ● Interest Stmt not on tree? (use link-link method) Link from 1040, line 8a to Sch B Link from Sch B, line 1b to Interest Stmt NTTC Training 201325

26. TAX-AIDE Interest Income ● If have many payers, alphabetize the list so it’s easier to find a payer With cursor in Payer column, use Alt+F9 to sort ascending NTTC Training 201326 The Input Form

27. TAX-AIDE Interest Income ● Abbreviate payer name if needed ● Determine federal tax rule first ● Determine state tax rule second The Input Form NTTC Training 201327

28. TAX-AIDE NAEOB Code E Exempt interest ● State or municipal obligations ● Exempt interest reported by broker  Do not use for certain EE/I bonds used for education - out of scope ● Enter in NAEOB amount column only (not Box 1/3) NTTC Training 201328

29. TAX-AIDE Interest Income Enter other amounts as shown on tax form ● AMT PAB – private activity bond interest ● Early (withdrawal) penalty TW carries to 1040 line 30 ● Federal tax withheld NTTC Training 201329

30. TAX-AIDE Interest Income Enter other amounts as shown on tax form ● Foreign tax credit – see Lesson 24 Input now so don’t forget ● State tax withheld Input now on appropriate state form so don’t forget NTTC Training 201330

31. TAX-AIDE Interest Income ● Complete one 1099-INT at a time ● Input all information on the form ● If brokerage statement, input all information on the brokerage statement  Too easy to miss items if try to go back to a form a second time NTTC Training 201331

32. TAX-AIDE Seller-financed Mortgage Interest ● Enter in Sch B top portion ● Link from first Sch B if need more forms ● Must have payer ID number to e-file NTTC Training 201332

33. TAX-AIDE Interest Income Quiz Is interest taxable on federal return? ● New York City bond interest? ● Treasury bill interest? ● Ford Motor Co bond interest? ● Interest on loan to cousin Charlie? NTTC Training 201333 No Yes

34. TAX-AIDE Foreign Interest Income/Account? ● Must ask and answer questions at bottom of Sch B Foreign account/signature authority Foreign trust ● If answer is “yes” to either, additional reporting may be required  Remind client of additional filing responsibility NTTC Training 201334

35. TAX-AIDE Dividend Income – What is it? ● Payment by a corporation ● Paid to its shareholders ● Represents a portion of the corporation’s earnings NTTC Training 201335

36. TAX-AIDE Dividend Income – What is it? ● Mutual funds* invest in (buy) Stock of corporations Bonds issued by private or government entities Other investments *Includes ETFs (exchange traded funds) NTTC Training 201336

37. TAX-AIDE Dividend Income – What is it? ● Mutual funds “pay” to their investors Dividends from the fund’s income  Dividend income from corporations  Interest income from bonds/accounts Capital gain distributions from capital transactions that the fund makes NTTC Training 201337

38. TAX-AIDE Dividend Income – What is it? ● Mutual fund dividends Dividend income from corporations  Will be identified as ordinary/qualified Interest income from bonds/accounts  Will be identified as exempt if from exempt securities, e.g. state bonds But both are still dividends to the fund’s shareholders NTTC Training 201338

39. TAX-AIDE Where to Find Dividend Income ● Form 1099-DIV ● Substitute 1099-DIV (brokerage or mutual fund statement) ● Schedule K-1 (Lesson 15) NTTC Training 201339

40. TAX-AIDE Dividend Income ● Ordinary dividend income, not qualified Taxed at regular tax rates ● Qualified dividend income Taxed at capital gain rates  1099 ordinary box 1a will always be greater than or equal to qualified box 1b NTTC Training 201340

41. TAX-AIDE Capital Gain Distributions ● They come from a mutual fund ● They’re long term ● Taxed at capital gain rates  Capital gain distributions from a muni fund are not “interest” and are not exempt NTTC Training 201341

42. TAX-AIDE Dividend Income ● Capital gain shown on K-1 Not the same as a capital gain distribution Do not input on Dividend Stmt  Will be covered in K-1 Lesson 15 NTTC Training 201342

43. TAX-AIDE Dividend Income ● Nondividend distributions Return of basis (cost) Basis in the paying security is reduced by the amount of nondividend distribution  Payers keep track of basis for covered securities (always client’s responsibility) NTTC Training 201343

44. TAX-AIDE Dividend Income ● Reinvested dividends Really, two transactions  Dividend income  Purchase of more shares Payer effects both instantaneously  Payers keep track of basis for covered securities (always client’s responsibility) NTTC Training 201344

45. TAX-AIDE Dividend Income The Tax Form NTTC Training 201345 OOS

46. TAX-AIDE Dividend Income ● Excerpt from sample brokerage statement The Tax Form NTTC Training 201346

47. TAX-AIDE Dividend Income 1099-DIV ● 1a Ordinary dividends 1b Qualified dividends – a subset of ordinary dividends ● 2a Capital gain distributions 2b §1250 gain – a subset of capital gain distribution 2d 28% gain – a subset of capital gain distribution NTTC Training 201347

48. TAX-AIDE Dividend Income 1099-DIV ● 3 Nondividend distribution – not reported but client needs to record as decrease in basis NTTC Training 201348

49. TAX-AIDE Entering Dividend Income ● Always use Dividend Stmt ● Select on Form Tree NTTC Training 201349

50. TAX-AIDE Dividend Income ● Dividend Stmt not on tree? (use link-link method) Link from 1040, line 9a to Sch B Link from Sch B, line 5a to Dividend Stmt NTTC Training 201350

51. TAX-AIDE Dividend Income ● If have many 1099 forms, alphabetize the list so it’s easier to find a payer With cursor in Payer column, use Alt+F9 to sort ascending NTTC Training 201351 The Input Form

52. TAX-AIDE Input information as on 1099-DIV ● Abbreviate or truncate payer name to fit ● Column “N” (nominee) not applicable for in-scope returns NTTC Training 201352 The Input Form

53. TAX-AIDE Input information as on 1099-DIV ● Exempt Int. Div., e.g. muni bond mutual fund May need state adjustment ● PAB – careful there is no AMT – out of scope ● State withholding? Input on applicable state form NTTC Training 201353 The Input Form

54. TAX-AIDE Dividend Income ● Complete one 1099-DIV at a time ● Input all information on the form ● If brokerage statement, input all information on the brokerage statement  Too easy to miss items if try to go back to a form a second time NTTC Training 201354

55. TAX-AIDE Dividend Income Quiz ● Payers of dividends of less than $10 don’t have issue 1099 (true or false?) True – same rule as for interest payers ● Taxpayers don’t have to report dividends if they don’t get a 1099 form (true or false?) False – all income must be reported on the tax return NTTC Training 201355

56. TAX-AIDE Dividend Income Quiz ● Dividends reinvested in more shares are not taxable (true or false)? False – the dividend income is the first transaction and the purchase of shares is a second transaction NTTC Training 201356

57. TAX-AIDE Other Item: 1099-INT or -DIV ● Investment expenses 1099-INT box 5 1099-DIV box 5 ● Possible itemized deduction Schedule A, Line 23 Subject to 2% of AGI threshold  Input now so don’t forget NTTC Training 201357

58. TAX-AIDE Foreign Tax on 1099-INT or DIV ● Nonrefundable credit – 1040 Line 47 ● 1099-INT or 1099 – DIV boxes 6 & 7  Input now so don’t forget  Will be covered in Lesson 24 NTTC Training 201358

59. TAX-AIDE Quality Review Interest/Dividend Income ● Check I&I – was interest/dividend box checked? ● Verify interest or dividend income is input correctly ● State adjustments? ● Delete unused rows on Interest/ Dividend Stmt (unless still own security) NTTC Training 201359

60. TAX-AIDE Quality Review Interest/Dividend Income ● Compare to prior year Missing accounts? ● Foreign tax credit or deduction? ● Miscellaneous investment expense deduction? NTTC Training 201360

61. TAX-AIDE Client Summary Interest/Dividend Income When done with return, revisit ● Balance due too high? Increase withholding? Estimated tax payments? ● Foreign accounts, trust, gifts? Does client have additional filing responsibilities? NTTC Training 201361

62. TAX-AIDE Interest and Dividend Income Comments? Questions? NTTC Training 201362

63. TAX-AIDE Let’s Practice In TaxWise ● Open the return for Kent/Bryant in TaxWise ● From Pub 4491-W, enter Interest and dividend income Foreign tax credit shown on forms ● Do not enter stock sales (1099-B) ● Verify tax liability NTTC Training 201363