As the tax–filing deadline quickly approaches, U.S. Savings Bond owners should be aware of some important, often surprising, tax reporting requirements. This applies to savings bonds that were cashed in, as well as for matured bonds they may still be holding. Here are three tax tips every investor should know:Redeemed Bonds: The difference between the purchase price and the cash in value of a savings bond is considered report-able interest income. For paper bonds, the financial institution that redeems the bond will either issue a 1099-INT for all of the interest earned on the spot, or mail the forms in the first few months of the following year. When cashing in electronic bonds, owners will need to print out their own 1099-INT from their Treasury Direct account.
Matured Bonds: According to the Internal Revenue Service, publication 550, once a savings bond reaches final maturity – regardless if the bond has been cashed in – the owner is required to report all of the interest income (unless previously reported annually) on a Federal Income Tax Return for that year. Failure to report the interest income could result in IRS fines and penalties, depending on final maturity, and the amount of interest earned.
Most bonds, including Series E, EE and I, as well as Savings Notes, have a 30-year life (some E bonds earned interest for 40 years). All Series E Bonds and Savings Notes have stopped earning interest. Use SavingsBonds.com’s complimentary Savings Bond Calculator© to determine cash in values, total interest earned amounts and final maturity dates (see below).
Note: Electronic savings bonds will automatically be redeemed at final maturity. This includes paper bonds converted to electronic bonds. Investors must print out their own 1099-INT from their Treasury Direct account. Paper savings bonds that have reached final maturity will not automatically be cashed in.
“Holding onto matured bonds is like giving the government an interest free loan,” according to Jackie Brahney, Marketing Director for SavingsBonds.com. She adds, “Investors need to consider tax implications before cashing in, as well as properly manage their portfolio of savings bonds to avoid any negative financial or taxation issues.”
Reporting Interest: Savings Bonds are subject to federal income tax, and are free from state and local income taxes. There is no special tax rate for savings bonds. Savings bond interest income should be reported as “ordinary income” on a tax return in the year the bond is redeemed or reaches final maturity, whichever occurs first. Use SavingsBonds.com’s complimentary Savings Bond Calculator©, to determine values, interest earned amounts and final maturity dates (see below).
Regardless if interest earned was (previously) reported annually, upon redemption, a 1099-INT will be issued for ALL of the interest earned since the bonds issuance. Refer to IRS Publication 550 and a tax consultant regarding interest reporting requirements, and keep all prior tax returns indicating the amount of interest already reported to avoid double taxation (especially to heirs and beneficiaries).
Sitting on any investment earning zero interest, such as matured savings bonds, may not be a wise decision. However, having to report too much savings bond interest income in any given year could adversely affect an individual’s tax bracket and social security benefits. Whether cashing-in or holding onto (matured) savings bonds, consult with a tax professional to be certain that you are reporting the correct amount of savings bond interest income on your tax returns.
Note: SavingsBonds.com’s complimentary Savings Bond Calculator©, provides a personalized, printable, color-coded, Savings Bond Inventory Report© along with a “what this means to you” explanation. For ongoing savings bond management, SavingsBonds.com’s unique VIP Membership© provides 24/7 access to detailed Bond Inventory Reports©, along with reports, tools and services, including their signature monthly emailed Bond Statements©, providing portfolio updates, pertinent financial information, along with important 3-month advance maturity alerts and taxation issues, not available elsewhere.
By: Jackie Brahney, Marketing Director, SavingsBonds.com www.savingsbonds.com, jbrahney@savingsbonds.com, Twitter: SavingsBondsgal