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If
you received nominee interest or other income for the actual owner, you
need to show the amount of nominee income separately, below a subtotal of
all similar income on your IRS tax return listed on the appropriate IRS
tax form.
Nominee
Interest
For
nominee interest, you must prepare an IRS tax Form 1099-INT for the
interest that is not yours and give Copy B to the actual owner. You
must also file a copy of the tax form and a completed IRS tax Form 1096,
Annual Summary and Transmittal of U.S. Information Returns, with the IRS
Service Center.
Other
Income
For
any other type of income, complete the same IRS Form used to report the
income to you so that you can report the nominee income to the actual
owner. (for example Form 1099-DIV,
Form 1099-MISC, Form 1099-PATR, etc.)
An
Example
Let’s
say that a Form 1099-MISC was issued to you under your social security
number for farm income and the 1099 shows $1,000 in Box 7, Nonemployee
Compensation. However, the
farm business which earned the income is owned 50% by you and 50% by your
brother. Each year you report
50% of all income and expense items on Schedule F and your brother reports
the other 50%. The IRS is
going to be matching the 1099 income of $1,000 to your tax return.
To
avoid the possibility of an IRS notice being sent to you, report on
Schedule F $1,000 of income along with the payer's name.
Then report “Nominee Distribution” for a negative $500 so that
you are only taxed on your portion of the income but the IRS can match the
1099 with the gross income reported on your return.
This method of reporting is also used if the income happens to be
interest, dividends, capital gains and losses or any other type of income.
Interest
& Dividends
Interest
and dividends pose a separate issue, however.
The new threshold for filing Schedule B, Interest and Dividends, is
now $1,500 or more. If the
only interest income reported to you is $100 and half of that is the
interest income of someone else, here is the proper method to report the
income.
Since
Schedule B is not required, don’t report $50 on Form 1040, page 1.
The IRS will be looking for the other $50 and probably sent a
notice of additional tax due. Instead,
attach an additional piece of paper to your return showing the full $100
as income less $50 as a nominee distribution.
If
you are using tax software, Schedule B may or may not print due to the
income being less than required for the form.
If it does not print, use the additional piece of paper method.
Otherwise, go ahead and attach Schedule B.
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