Question

Ray and Maria Gomez have been married for 3 years. Ray is a propane salesman for Palm Oil Corporation and Maria works as a city clerk for the City of McAllen. Ray's birthdate is February 21, 1991 and Maria's is December 30, 1993. Ray and Maria each received a W-2 from their respective employers (see separate tab).

Ray and Maria have interest income from McAllen State Bank which is reported a 1099-INT form (see separate tab). In addition, they own U.S. Savings bonds (Series EE). The bonds had a value of $10,000 on January 1, 2019, and their value is $10,700 on December 31, 2019. They have not made an election with respect to these bonds.

Ray has an ex-wife named Judy Gomez. Pursuant to their January 27, 2014 (pre-2019) divorce decree, Ray pays her $450 per month in alimony. All payments were made on time in 2019. Judy's Social Security number is 566-74-8765.

During 2019, Ray was in the hospital for a successful operation. His health insurance company reimbursed Ray $4,732 for all of his hospital and doctor bills.

In June 2019, Maria's father died. Under a life insurance policy owned and paid for by her father, Maria was paid death benefits of $25,000. She used $7,800 to cover a portion of the funeral costs for her father.

Maria bought a Texas lottery ticket on impulse during 2019. Her ticket was lucky and she won $4,025. The winning amount was paid to Maria in November 2019, with no income tax withheld.

Palm Oil Corporation provides Ray with a company car to drive while he is working. The Corporation spent $5,000 to maintain this vehicle during 2019. Ray never uses the car for personal purposes.

How do I find the taxable interest on the 1040 form?

Answer 1

CALCULATING THE TAXABLE INTEREST ON THE 1040 FORM


IRS ( internal revenue service ) has issued form 1040 for the individual tax payers of the UNITED STATES for filing their personal federal income tax returns

It helps in calculating the total taxable income of the individual after accounting to report wages, salary, taxable interest, capital gains, pensions, Social Security benefits, and other types of income of the individual

After taking the above factors and aspects into consideration it tells about how much is to be paid to the government or is to be refunded by the government to the individual tax payer

The taxable interest can account from various places being money what is earned on the money put aside in a bank or the money market account and on other various sources

Other common sources are checking and savings accounts, saving certificates , certificates of deposits , Government bonds , interest accrued on insurance proceeds , and in the above case as well we find such income sources being

- Ray and Maria having interest income received from McAllen State Bank

- Ray and Maria even hold U.S security bonds The bonds had a value of $10,000 on January 1, 2019, and their value is $10,700 on December 31, 2019.

- Maria received insurance proceeds after her father’s death ( benefits of $25,000)

- Ray received amount from his health insurance company reimbursing him $4,732 for all of his hospital and doctor bills.


ALONG WITH ALL OF THIS THERE ARE SOME EXEMPTIONS AS WELL

- Interest on treasury bonds is taxable on federal return but is tax free at state level

- Interest on municipal bonds is tax free at federal level , its also tax free at state level if invested in a bond thats issued in the same state

- Interest on bonds issued by District of Columbia, Toll-road commissions , Port authorities , U.S. possessions and political subdivisions and Amounts indicated on broker statements as tax-exempt interest or tax-exempt dividends are also exempt from federal income tax


REPORTING INTEREST INCOME

Interest income earned is reported in different forms and places at the time of filing if tax depending upon the type of interest earned during that year

- Bond interest of private activity is reported on Line 2a of the 2019 form 1040

- The yearly taxable interest is recorded on Schedule B of the 2019 form 1040 which is termed as “ interest on ordinary dividends”

- The total from Schedule B is then recorded and reported in line 10b of the form 1040

- Tax exempt municipal bond interest is recorded and reported on line 2a of the 2019 form 1040

- Schedule B of federal tax law is a supplemental tax form which is used for tallying up dividend and interst income , if the individual tax payer ( as in case of RAY and MARIA ) as the received interest income from multiple sources

- In that case using and filing Schedule B is mandatory if the interest income is more than $1500

- the schedule is also used to total interest income so that it can be reported on Form 1040, even if not required to file it.