Reporting Investment Income and Expenses

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Income from investments and related expenses are reported on different parts of Form 1040.

Interest income is reported on line 8 of Form 1040. Source documents include Form 1099-INT, Form 1099-OID and bank statements if no 1099 was issued. Schedule B is required if a person has more than $1,500 of interest to report.

Dividend income is reported on line 9 of Form 1040. The relevant source document is Form 1099-DIV. Schedule B is required if a person has more than $1,500 of dividends to report.

Capital gains from the sale of stocks, bonds, mutual funds and other investments are reported on Form 8949, with summaries recorded on Schedule D, and the net amount reported on line 13 of Form 1040. The relevant source documents are Form 1099-B,  gain/loss reports from the broker, and trade confirmations for the original investment.

Capital gains income is measured by the difference between gross proceeds from selling the investment and the cost basis of the investment. The broker’s Form 1099-B reports cost basis for “covered securities.” Covered securities are investments for which a broker is required to report cost basis to the IRS. Some transactions on Form 1099-B might not show cost basis. Instead, this might be reported on the broker’s year-end gain/loss report. If the broker doesn’t show any cost basis, individuals will need to calculate their own cost basis using documents such as trade confirmations.

Expenses related to investments can be tax-deductible. If a person took out loan to purchase investments, the interest on the loan can be deducted as investment interest expense. And don’t worry, high net worth investors deduct everything, and so should you!

Investment advice, management fees, safe deposit boxes and other investment expenses are deductible as well. Both of these are itemized deductions on Schedule A.

Interest, dividends and capital gains may also be subject to the net investment income tax. This is a new tax that took effect in 2013 for higher-income individuals.

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