Dividend and interest income reporting by joint owners

[curiousgeorge]

Brokerage and bank accounts jointly owned by father and adult son - but only son's name and SSN on 1099-DIV and 1099-INT.  How do both account owners report dividend and interest income on tax returns?
Thanks much!

[rangerj]

If they are joint and severable owners, that is they each own the account 100%, then they can report the income in any ratio they choose, e.g. 50/50, 60/40, etc. If they are legally considered to be 50/50 owners, or owners in some other ratio say based upon the contribution of capital ratio, then they report the income in that ratio. If they are considered to be "partners" then they would report in the ratio agreed upon in a partnership agreement. If there is not a partnership agreement then the reporting ratio is 50/50. So, how is the account titled, and/or is there a formal agreement, or state/local law, regarding the dividing of the income generated. While all states subscribe to the Uniform Commercial Code they do not all have exactly the same statutes for all ownership interests in things like investments.

You may want to have a formal agreement drafted and distribute the income according to the agreement. Attach a statement to the tax return of the person whose name is not on the 1099 informing the IRS of the reporting of the income in the agreed upon ratio. Identify the person whose name and SSN is on the 1099 so that IRS does not get excited over the fact that the 1099 and the income reported do not match. Attach the same statement to the persons return whose name is on the 1099.

[m2m]

I think have read or heard someplace that on the Schedule B of the person whose name is on the 1099s, an additional line can be added for the amount that belongs to the other account owner whose name is not on the 1099s.
On this additional line would be the name & SSN of the other owner and his share of the income entered as a negative number and described as “received as nominee for”
Similarly, the same information would be entered on the Schedule B of the other owner, except the number would be entered as a positive number.

Unfortunately, cannot provide a reference for above - but I thought I'd post it - just in case someone else may know anything or more about it.

[rangerj]

The situation described by the OP is one where there are two JOINT owners, not a NOMINEE named on the 1099. That having been said, the procedure described for a nominee situation would work. The important point is that the income be reported and that the IRS know why all of the income was not reported by the person named on the 1099, and who reported the portion of the income.  I see this situation very often because in my state married couples who both work are generally better off filing MFS because if they file joint their State tax is significantly higher. A division of jointly owned investment income is common and the investment is usually in one of their SSNs.   

[curiousgeorge]

Thanks all!

Ranger - the account is titled in both names, JTWROS.  1099s has only the name and SSN of the first (primary) name. 
Does the account need to be titled differently?  Should the 1099 list the second name as Nominee?  How?

Thanks again!

[rangerj]

How an investment is "titled" is a legal issue and the way that impacts the estate of the owners can vary from state to state. For federal INCOME tax all the IRS wants to know is that the amount of income is reported correctly on the tax returns of the person or persons who own the income. If the amount on the 1099 does not show up on the return of the person whose SSN is on the 1099 they want to know why. Tell them who reported the income and how much each owner reported and they will be happy. For small amounts I prefer to use the simplest possible method and that is to attach a statement naming the owners and including each SSN and the amount being reported by each. The total amount should equal  the amount on the 1099. For large amounts I use a more formal process such as the nominee reporting process, or in some instances a partnership and K-1s. Keep it simple if you can. 

[curiousgeorge]

Thanks again Ranger!

[curiousgeorge]

Hello Ranger,

Sorry, I forgot to ask - how about capital gains distributions - same situation.

Thanks again!

[rangerj]

If the capital gains/losses are coming through a jointly owned "account" then I would treat it the same. If the capital gains/losses are coming from a jointly owned asset, say a piece of land, or apiece of machinery, etc., then you are getting into the "partnership" rhelm and a form 1065 and forms K-1 (or Sub-S) would be necessary. If the amounts are relatively small an attached statement would suffice. Again, IRS wants to know that all the income has been reported and who reported it. Generally they are happy as long as they can match up the "information return" to one or more tax returns. Capital gains can be a bit stickier because of cost basis, adjustments to basis, depreciation and/or credit recapture, etc.  Again, if the amounts are small and the situation is not complicated then an attached statement with all the pertinent information should suffice.

[curiousgeorge]

Hello Ranger,

Dividend, interest and capital gains are all small amounts from the same joint account. 

It's great that "an attached statement with all the pertinent information should suffice".  How do I attach a statement for e-file? 

Thanks again!  

[rangerj]

Many of the available tax software programs have a provision for an "explanation", "comments", or a "statement" and the whole file, including the aforementioned, could be sent via an "e-file".

[curiousgeorge]

Good morning Ranger,

Thanks so much!