 Income tax 2023-2024. Interest income tax software example. Get ready and some coffee because we need some extreme concentration when doing income tax preparation 2023-2024. First, a word from our sponsor. Actually, we're sponsoring ourselves on this one because apparently the merchandisers they don't want to be seen with us. But that's okay whatever because our merchandise is better than their stupid stuff anyways. Like our crunching numbers is my cardio product line. Now, I'm not saying that subscribing to this channel crunching numbers with us will make you thin, fit, and healthy or anything. However, it does seem like it worked for her. Just saying. So, subscribe, hit the bell thing and buy some merchandise so you can make the world a better place by sharing your accounting instruction exercise routine. If you would like a commercial free experience consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com Here we are in our Form 1040 example problem using LASERT tax software. You don't need tax software to follow along but if you have access to tax software it's a great tool to run scenarios with. You can also get access to the forms, schedules, instructions at the IRS website, irs.gov, irs.gov. Our taxpayer at our normal starting point Adam Taxman just trying to avoid a dang Taxman living in 90210 Beverly Hills back to a single fire learn no dependence due to income starting at 100,000 standard deduction 13,850 taxable income 86,150 mirroring that on our Excel worksheet formula format we have the 100,000 income 13,850 taxable income now at the 86,150 tax being calculated by the LASERT software page 2 at the 14266. We now want to be thinking about interest income if I go back to page 1 typically you're going to get a form something like this which will be a 1099INT form usually although interest can be reported on other forms if there's a flow through entity like a partnership or an S corporation on a K1 but it's still usually fairly straightforward that it's going to be interest although it's a little bit harder to organize your forms to double check them sometimes you might have some kind of interest that's reported on a 1099DIV as well but and also note that the interest form might not always look exactly like this because the financial institutions might structure the form a little bit differently putting possibly the interest and the dividend form close to each other because the same financial institution often is responsible for issuing a 1099INT and a 1099DIV because both of those things are typical of investment institutions now where do we report this or where will we see this coming through on the form 1040 we have line 2A which has the tax exempt interest to be the taxable interest so both exempt and taxable interest being shown on the schedule so even if we're not being taxed on it we need to basically show it and we'll still see the evidence of it there in part because you would think the government wants to see if we get a large amount of interest income whether it be taxable or not they can tell that we must have a decent amount of money put away somewhere that's generating interest so then if this amount goes over a certain dollar amount then you'd have to attach schedule B so schedule B not required but unless it goes unless it is if it goes over a dollar amount we have the interest and ordinary dividends we're focusing in on interest this time and in this case we'd have to list the name of the payer because now the IRS wants to know who paid you if any interest is from a seller finance mortgage and the buyer use the property as a personal residence see the instructions so that's going to be one somewhat of a special situation so let's imagine just a normal interest situation we're going to go back on over and say that we had interest income let's just say it came from bank number one and I'm just going to say that it was $100 and so now I'm going to go back on over that would typically be on a form 1040 box number one interest income if any box is populated that's a little bit confusing then of course you can go to the instructions find this form on the IRS website or if you have access to it with your data input look at the instructions part of it if I go back to the form 1040 you'll note that the schedule B is not highlighted because it's not over the dollar amount to have to add the second schedule so just to realize with these other schedules normally if you were going to make this from scratch and make up the forms you would probably like we did here say I'm going to have all the income pull into one line item on the first page and everything else be on a separate form like the schedule B in our case I put it over here so let's add another income line item we had W2 income and now I'm just going to pull the total down and add interest income here and this would be pulling in similar to like a schedule B we could make a whole other schedule for interest and dividend income or we can basically I'm going to put it on one worksheet this time for now at least interest income so I'm going to highlight this home tab, font group let's make it black and white and then I'll leave some space for multiple institutions let's go down to like let's do it down to here make that I'm going to make it blue and bordered and move this down a bit further and then I'll just mirror this so this is going to be total interest income and we'll say this came from bank one was $100 the total I'll just sum it up equals the sum of that $100 now I need to include that in the total down below which is the W2 income plus the interest income is now at the $100,100 which is pulling in our formula to page one so again logistically you would think that the tax return would use the sub schedules in order to feed into like the main sheet as we're are doing here and that would be the use of the schedule B but you'll recall that historically what the IRS wanted to do it seems to me is to try to make a very short form because that was advantageous especially when you had to do them by paper and not by software so they wanted to put everything on one page that they could so these line items being broke out down here have been there for some time as kind of a legacy type of thing instead of just summing everything up into income and the reason they want the schedule B isn't basically originally wasn't so they can sum everything up to the first page but rather to get more information only when you need it would be the general idea so the schedule B is listing the institutions and the IRS is going to want that added information breaking out the individual interest incomes if your income is over certain threshold that would indicate that you're fairly well off because interest is usually fairly low in terms of a rate of interest so if you're getting over 1,500 of interest you must have a fairly substantial amount of money and the bank would be the idea and the IRS might want to kind of gives an idea of the IRS to keep an eye on someone who might if they die or something they want to make sure that they come pick your pockets with the death tax or something like that might give them a heads up on I don't know I'm just kidding I don't really know but let's go back on over and say we could of course have multiple institutions so we might have like added bank we've got bank number two and and gives us interest let's say of 170 so we're still well under the limit and therefore those two are going to be combined and pull into basically page one of the form 1040 now at 270 we can mirror that on our Excel worksheet by going to our income and say now we have bank two at 170 which is pulling into 250 on the interest 10270 going back over 10270 13850 of the standard deduction still gives us taxable income 86 for 20 so 86 for 20 and the tax I won't adjust the tax but the tax would be calculated based on that the interest is not a separate rate thus far because this has been taxable interest which will be taxed at the normal progressive rates thus far so then we can say okay well what if we had a large amount of interest because we've been doing really well or something so we're like okay we got a lot of we did good last year but now the IRS wants to know what did you do in order to make that money so we're going to say let's say we made another 1700 of interest right and so now I'm going to go okay let's go back on over to the forms so now the form 1040 still is going to pull that in to we said it was still taxable so it's still being pulled in as a taxable interest but now the schedule B has been triggered and so now we need to attach the schedule B which is just adding up the institutions adding up to the 19970 which is then pulling over to the form 1040 now of course the IRS would typically have the forms that would add up to these dollar amounts on their side right so they can kind of double check it because the 1099s would been given to you as well as to the IRS is the is the general idea now then you could imagine that you have tax exempt interest so we have so interest on us savings bonds here and then line 8 tax exempt interest so let's say we have tax exempt interest and go back on over and say okay this is going to be bank number four and we're going to say now it was let's say us bonds T bills and we'll say or I'll say it over here this is this is so now we have a total municipal bonds and then in-state municipal bonds so you have to also kind of be aware of what the state tax rules are going to be with regards to it as well if you have an income tax for the state and so on so but I'm going to go back on over and say okay so now I have 300 that is in the tax exempt interest in 1,970 in the taxable interest if I go to my schedule B we can see then we only are listing basically the taxable interest so I'm still this is kind of like a reporting requirement here but not really having an impact on the return so if I went and mirrored that on my software I might say like tax exempt so bank this was what was I on here this was bank 3 which I said was 1,700 we said or something like that and then bank 4 I might say this was exempt just for reporting purposes say 300 on the outside because it's exempt so it's not being included in our calculation down below and then we can say okay 1,970 is pulling over to page 1 102 270 so so now we're at 1,970 hold on I can't put it there because now it's summing up in this total so I'm going to put it on the outside I'll put it out over here so it's not included so this is my exempt interest area just for reporting purposes on my worksheet so now my I'm not 101,970 101,970 101,970 okay and then 88,120 88,120 okay now we mentioned before that sometimes it's possible you might get like a 1099 div that has an interest component in it so in other words if I go back on over here and I go to my if I got a 1099 and I say okay I'm going down to my now I've got my 1099 for dividends so I'm going to look for the 1099 div income and then I'm going to say this was investment 1 or something but they put over here a tax exempt interest line on the 1099 dividend which is kind of unusual because you would think that that would that would be on a 1099 int but again because you have some situations where the same institution possibly is dealing with the dividends which are related to investing in stocks and bonds which are interest which is related to investing in bonds then sometimes you might have an interest component on the 1099 div which should be fairly well shown on the form and then the data input form for most software is pretty easy to find so if it was another let's say $500 there the data input is easy generally then because your software will kind of match it up and then when you pull on over when you pull on over it still shows up over here right so now I've got the 800 and if I mirror that my software I had the 300 plus the 500 is the total 800 of the exempt amount I can sum these up right and so the only thing that's a little tricky about that is that then when you're trying to double check your numbers and like where did that 800 come from you're probably lining up all of your 1099 interest forms and then sometimes you're going to have this 1099 that was a dividend and sometimes the dividend forms and the interest forms were kind of clumped together because they come from the same institution or you have a dividend form that has this interest component on it which makes it a little bit harder to organize your documents sometimes when you're doing the data input or checking your numbers now note you could have a similar thing going on with like pass through entities so if you get a K1 or something like that then you could have a similar kind of thing so like a pass through entity K1 for like a partnership for example and you could say okay I had a now like if you're doing individual taxes you might say hey look I'm not going to do the business tax returns meaning I'm not going to do the partnership tax return but you might be willing to say if someone else does the partnership tax return I'm willing to take the K1 and do the data input from the K1 because that's usually fairly straightforward from an individual income tax preparation you know side of things once the partnership return has been created and then again you could have within your income line items here interest but usually again the line items of the K1 that flows through to the individual tax return is usually pretty lined up in your data input software to the actual K1 so it's fairly easy to do the data input normally so let's say you had interest income here of 890 that came through and so then if I go to my schedule B or let me go back on over to the 1040 so now that is being included in this 2008-60 and it's flowing through from the K1 and you have a K1 worksheet and whatnot that can kind of show that the reason I want to point that out here is just because again that becomes another one that's a little bit tricky when I'm trying to tie out this number to my forms because I'm trying to organize my forms and this all came from the 1099 interest but now I've got this K1 which usually would flow into like an income line item or something like that but now that has an interest component to it which I have to take into consideration when I'm trying to double check this number now let's think about a situation where you had a 1099 this is an unusual situation you got a 1099 for interest so that would mean that you would have to record an income but for whatever reason it's not actually your interest income it's the income of somebody else and so the 1099 is coming to you you might have reporting requirements to report it to someone else and we saw some examples of these like nominees or when we had the mortgage situation in a prior presentation so the general idea would be now I got a 1099 that's assigned to me but I don't think it has to be recorded in income for me it has to be recorded in income for somebody else but if I don't put the money into the tax return especially if I'm over a certain dollar amount even if I'm not the IRS will add up the 1099s and see that what I reported is less than what they have and therefore I need to show on my return the same amount so how do I do that how do I record the amount so they can tie it out to what they have but still reduce it again so that I can report the proper amount so let's imagine for example I'm going to just call this bank number 5 and let's say I'm just going to make a large number so we can see it 6000 of interest so we have interest coming through but it's not for us for whatever reason and you can see in this data input we have the adjustments to the federal tax interest nominee interest, accrued interest tax exempt interest original issue discount amortizable bonds these were some of those kind of more unusual situations that we talked about in a prior presentation I'm just going to say it was a nominee interest and say that it was we're going to put 6000 here so now I'm going to go back on over and say okay so now if I go to my 1040 page 1 it's not impacting here if I go to the schedule B I could say what happened well now I've got bank 1 2, 3, 4 and 5 there's the 6000 that I included and then it's subtotalling so it's adding all that up and then it's giving me another line item let's back out again and it's calling it a nominee distribution so you could put more information possibly in the line item there describing it but that's the general idea so now the IRS can say okay my number that we got on the 1099s matches what was reported by the taxpayer so the IRS is saying we see 8,860 reported and the schedule speed shows 8,860 but then we took out the 6000 telling them why so that they can see what's happening and now we're at the 2,860 so that's the general idea so the rule to take away from this is that any form that you get 1099W2 the IRS has it right so if you report something less than the forms that you get then you're probably going to be questioned if there's a rationale as to why to do that then you're going to have to show that on the return somehow or if it's an error in the form then you've got to go back to the person that issued the form to fix it you'd have to go back to them and say you need to reissue the form because the IRS has it and I need to report the right dollar amount and that's not going to match what the IRS has so that's going to be the general idea so generally interest fairly straightforward for most taxpayers driven by the 1099 interest forms although interest can come through in other forms as well like the pass-through entity forms and then of course we have to determine whether or not the interest is taxable or not which again is usually fairly well defined on the data input forms the 1099 interest forms