Question

What is interest and is interest income included in Gross Income?

Is dividend income included in gross income and if so? When should schedule B be used?

Answer 1

Interest is a percentage of principal borrowed by the borrower from the lender for using financial resource or benefit of the latter. The definition of gross income specifically mentions Interest as one of its component. Hence any interest received is to be included while reporting the gross income.

Dividend income are of two types: Qualified dividend income or Ordinary dividend income. The ordinary will be taxed as ordinary income of the tax payer and the qualified will be taxed at a lesser rate. Both are included in adjusted gross income.

Schedule B is used if the taxable interest or/and ordinary dividend income exceeds $ 1500 or if there are any less common forms of interest received during the tax period.