How to best deal with tax on old IBonds

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hoops777
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How to best deal with tax on old IBonds

Post by hoops777 »

We have 3 10,000 IBonds bought in May 2001 with a 3pct base rate.
There are going to be some serious taxes owed upon maturity.
I am assuming it would be wise to cash one out in Dec 2030 to lessen the tax hit.
Any other thoughts on this ?
I know it is 9 years out but I am in the process of writing a directive or plan in case I am no longer here.
Thanks
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Re: How to best deal with tax on old IBonds

Post by fabdog »

Congrats... that's a great problem to have. I know I wish I had more IBonds from when the base rate was in that range.

You can certainly look at cashing in 1 a year to spread the hit out... or 1 on 2030 and 2 in 2031... and the good news is it won't impact your state taxes.

Another path, but complicated, esp if you are leaving instructions, is to start accruing the interest now (a one time hit in the yer you start) and keep accruing. That will spread the hit out. Of course, you have to do that for all savings bonds you hold. Where it can get messy is if you pass and the person handling things doesn't know you were accruing. the 1099-INT that will come when you cash them in shows all the interest, and you have to back out what you've previously accrued. If someone doesn't know that, and has kept up with reporting the accruals, they may pay tax on interest you've already reported and paid tax on

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Re: How to best deal with tax on old IBonds

Post by Mel Lindauer »

hoops777 wrote: Fri May 27, 2022 10:44 am We have 3 10,000 IBonds bought in May 2001 with a 3pct base rate.
There are going to be some serious taxes owed upon maturity.
I am assuming it would be wise to cash one out in Dec 2030 to lessen the tax hit.
Any other thoughts on this ?
I know it is 9 years out but I am in the process of writing a directive or plan in case I am no longer here.
Thanks
While I'm a huge fan of I Bonds, I'm not a fan or TD. However, having said that, you may want to consider converting your paper bonds to electronic and then redeeming less than $10k per year for a number of years to spread the tax burden out over a longer period than three years.
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Re: How to best deal with tax on old IBonds

Post by hoops777 »

Thanks for the suggestions.
When you think about it, IBonds do not keep up with inflation because you get hammered by the taxation at the end.
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Re: How to best deal with tax on old IBonds

Post by H-Town »

hoops777 wrote: Fri May 27, 2022 12:27 pm Thanks for the suggestions.
When you think about it, IBonds do not keep up with inflation because you get hammered by the taxation at the end.
I’m thankful to have interest income to pay taxes. What’s the alternative? Don’t have interest income at all?

If you plan to retire early at 8 year make, you should be able to pay taxes at lower bracket.
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Re: How to best deal with tax on old IBonds

Post by neurosphere »

hoops777 wrote: Fri May 27, 2022 12:27 pm Thanks for the suggestions.
When you think about it, IBonds do not keep up with inflation because you get hammered by the taxation at the end.
Not all that different than most of the other bonds in my pre-tax retirement accounts! :D

But seriously, it's true that "these keep up with inflation!" excitement is dulled when taxes are considered. Now whenever I discuss I-bond with others I'm always stating that 0% I-bonds are guaranteed to "scale with" or "track" inflation but potentially heavily mitigated by taxes upon cashes. That said, taxes did not keep me from maxing out my allotment this year.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
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Re: How to best deal with tax on old IBonds

Post by exodusNH »

hoops777 wrote: Fri May 27, 2022 12:27 pm Thanks for the suggestions.
When you think about it, IBonds do not keep up with inflation because you get hammered by the taxation at the end.
The alternative would be to have less money.

You don't have to cash out the full amount at once. You can do partial redemptions. They prorate the interest based on the amount of principal being withdrawn.
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Re: How to best deal with tax on old IBonds

Post by Jack FFR1846 »

Do you have kids heading to college? If your income is below the limit and the bonds were parent purchased, they may be cashed to pay tuition and fees for parent, parent's spouse or kids.

Who Can Take the Exclusion
You can take the exclusion if all five of the following apply:

You cashed qualified U.S. savings bonds in the same tax year for which you are claiming the exclusion.
You paid qualified higher education expenses in that same tax year for yourself, your spouse, or your dependents.
Your filing status is any status except married filing separately.
Your modified adjusted gross income was less than the cut-off amount set by the Internal Revenue Service. This amount typically changes every year. See IRS Form 8815 for the current amount.
You were 24 or older before your savings bonds were issued.
Savings Bonds That Qualify for the Exclusion
To qualify for the exclusion, the bonds must be Series EE or Series I savings bonds issued after 1989 in your name, or, if you are married, they may be issued in your name and your spouse's name. Note: A bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or the child.
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Re: How to best deal with tax on old IBonds

Post by camillus »

Importantly, is there anyone in your family you’d like to support educationally? Elementary through grad school? Any folks with a disability?
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Re: How to best deal with tax on old IBonds

Post by neurosphere »

Jack FFR1846 wrote: Fri May 27, 2022 1:17 pm Your modified adjusted gross income was less than the cut-off amount set by the Internal Revenue Service. This amount typically changes every year. See IRS Form 8815 for the current amount.
These are the MAGI limits from the 2021 form. As always, this version of MAGI may not be the same as MAGIs used for other tax purposes "see instructions". :D
If line 9 is $98,200 or more if single, head of household, or qualifying widow(er); or $154,800 or more if married filing jointly, stop. You cannot take the exclusion.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
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Watty
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Re: How to best deal with tax on old IBonds

Post by Watty »

hoops777 wrote: Fri May 27, 2022 10:44 am Any other thoughts on this ?
I know it is 9 years out but I am in the process of writing a directive or plan in case I am no longer here.
I have a similar amount of those same iBonds. Most likely I will just redeem them and use them for my living expenses and try to not have much other taxable income that year other than RMDs and dividends in a taxable account.

You are over thinking this.

Your heirs tax situation 9 years from now is likely even more unpredictable than yours.

You could also be in a nursing home then and have very high itemized deductions so that you would not need to pay taxes when you redeem them.

I am just planning to just review it a year before they mature to see if cashing some of them a year early makes sense.
Jack FFR1846 wrote: Fri May 27, 2022 1:17 pm Do you have kids heading to college? If your income is below the limit and the bonds were parent purchased, they may be cashed to pay tuition and fees for parent, parent's spouse or kids.

Who Can Take the Exclusion
You can take the exclusion if all five of the following apply:

You cashed qualified U.S. savings bonds in the same tax year for which you are claiming the exclusion.
You paid qualified higher education expenses in that same tax year for yourself, your spouse, or your dependents.
Your filing status is any status except married filing separately.
Your modified adjusted gross income was less than the cut-off amount set by the Internal Revenue Service. This amount typically changes every year. See IRS Form 8815 for the current amount.
You were 24 or older before your savings bonds were issued.
Savings Bonds That Qualify for the Exclusion
To qualify for the exclusion, the bonds must be Series EE or Series I savings bonds issued after 1989 in your name, or, if you are married, they may be issued in your name and your spouse's name. Note: A bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or the child.
You can also roll iBonds into a 529 for grandkids or great grandkids and not pay taxes on it.

That is not done a lot so a lot of people do not realize that it is possible.

This is something that I will consider doing when they are close to maturity.
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Re: How to best deal with tax on old IBonds

Post by hoops777 »

Watty wrote: Fri May 27, 2022 2:04 pm
hoops777 wrote: Fri May 27, 2022 10:44 am Any other thoughts on this ?
I know it is 9 years out but I am in the process of writing a directive or plan in case I am no longer here.
I have a similar amount of those same iBonds. Most likely I will just redeem them and use them for my living expenses and try to not have much other taxable income that year other than RMDs and dividends in a taxable account.

You are over thinking this.

Your heirs tax situation 9 years from now is likely even more unpredictable than yours.

You could also be in a nursing home then and have very high itemized deductions so that you would not need to pay taxes when you redeem them.

I am just planning to just review it a year before they mature to see if cashing some of them a year early makes sense.
Jack FFR1846 wrote: Fri May 27, 2022 1:17 pm Do you have kids heading to college? If your income is below the limit and the bonds were parent purchased, they may be cashed to pay tuition and fees for parent, parent's spouse or kids.

Who Can Take the Exclusion
You can take the exclusion if all five of the following apply:

You cashed qualified U.S. savings bonds in the same tax year for which you are claiming the exclusion.
You paid qualified higher education expenses in that same tax year for yourself, your spouse, or your dependents.
Your filing status is any status except married filing separately.
Your modified adjusted gross income was less than the cut-off amount set by the Internal Revenue Service. This amount typically changes every year. See IRS Form 8815 for the current amount.
You were 24 or older before your savings bonds were issued.
Savings Bonds That Qualify for the Exclusion
To qualify for the exclusion, the bonds must be Series EE or Series I savings bonds issued after 1989 in your name, or, if you are married, they may be issued in your name and your spouse's name. Note: A bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or the child.
You can also roll iBonds into a 529 for grandkids or great grandkids and not pay taxes on it.

That is not done a lot so a lot of people do not realize that it is possible.

This is something that I will consider doing when they are close to maturity.
I did not know that. My grandsons are 3 and 7 so these are for them anyway. 529 sounds like a great option.
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Re: How to best deal with tax on old IBonds

Post by Onlineid3089 »

I believe Randy Moss said it best back in 2005 "Straight cash homie"
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Re: How to best deal with tax on old IBonds

Post by Mel Lindauer »

hoops777 wrote: Fri May 27, 2022 12:27 pm Thanks for the suggestions.
When you think about it, IBonds do not keep up with inflation because you get hammered by the taxation at the end.
Actually, when it comes up to after-tax results, the older I Bonds, with fixed rates of up to 3.6% over and above inflation, obviously did (and continue to do) a very nice job dealing with inflation.
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Re: How to best deal with tax on old IBonds

Post by HueyLD »

“ You can also roll iBonds into a 529 for grandkids or great grandkids and not pay taxes on it.”

Not likely unless the grandkids or great grand kids qualify as your dependents, and of course you need to meet other requirements.
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Re: How to best deal with tax on old IBonds

Post by SnowBog »

HueyLD wrote: Fri May 27, 2022 4:16 pm “ You can also roll iBonds into a 529 for grandkids or great grandkids and not pay taxes on it.”

Not likely unless the grandkids or great grand kids qualify as your dependents, and of course you need to meet other requirements.
IANAL or a tax advisor... But others have reported if you are willing to jump through some hoops it might be possible. https://www.kiplinger.com/article/taxes ... ation.html
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Re: How to best deal with tax on old IBonds

Post by grabiner »

hoops777 wrote: Fri May 27, 2022 10:44 am We have 3 10,000 IBonds bought in May 2001 with a 3pct base rate.
There are going to be some serious taxes owed upon maturity.
I am assuming it would be wise to cash one out in Dec 2030 to lessen the tax hit.
Any other thoughts on this ?
Another alternative would be to make a large charitable donation in 2031, to get a deduction in what would otherwise be an unusually high tax bracket. For example, you could draw all your living expenses from your IRA in 2030, and make a Qualified Charitable Distribution for your entire RMD in 2031.
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Re: How to best deal with tax on old IBonds

Post by neurosphere »

SnowBog wrote: Fri May 27, 2022 4:24 pm
HueyLD wrote: Fri May 27, 2022 4:16 pm “ You can also roll iBonds into a 529 for grandkids or great grandkids and not pay taxes on it.”

Not likely unless the grandkids or great grand kids qualify as your dependents, and of course you need to meet other requirements.
IANAL or a tax advisor... But others have reported if you are willing to jump through some hoops it might be possible. https://www.kiplinger.com/article/taxes ... ation.html
Yikes, that's a twisted knot of a strategy. Temporarily make the grandparent the 529 beneficiary...then have the GP cash the bonds and contribute to "their" 529...then change the beneficiary back to the grandchild. I suspect one day that strategy will end up in tax court! I'm saying that playfully. But it certainly seems like a risky strategy on the face of it, but I have no idea if it's been validated with an IRS stamp of approval of sorts at any point.
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Re: How to best deal with tax on old IBonds

Post by hoops777 »

After a little more thought, if I am still alive and kicking in 9 years, I will happily pay the taxes if the 529 deal does not work.
I guess it is a bit unfair to complain on paying tax on something that compounded for 30 years. :D
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Re: How to best deal with tax on old IBonds

Post by SR II »

I had several thousand dollars in paper EE-bonds that my mom bought over 30 years ago with me as the co-owner. Since they matured in 2020 and I didn't want to go into a bank branch at that time, I waited until 2021 to cash them all in at once. I just sucked it up and paid the taxes on the interest. Done.
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Re: How to best deal with tax on old IBonds

Post by Gill »

SR II wrote: Fri May 27, 2022 5:00 pm I had several thousand dollars in paper EE-bonds that my mom bought over 30 years ago with me as the co-owner. Since they matured in 2020 and I didn't want to go into a bank branch at that time, I waited until 2021 to cash them all in at once. I just sucked it up and paid the taxes on the interest. Done.
You should have reported the interest as 2020 income, the year of maturity. What you did was incorrect.
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Re: How to best deal with tax on old IBonds

Post by Broken Man 1999 »

I can think of a whole lot of other problems to have far worse than my I-bond accrued interest!

That doesn't mean I won't whine about it. :D

By the time the bonds mature in 2030 and 2031 I'll be in RMD mode.

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Re: How to best deal with tax on old IBonds

Post by tj »

Gill wrote: Fri May 27, 2022 5:48 pm
SR II wrote: Fri May 27, 2022 5:00 pm I had several thousand dollars in paper EE-bonds that my mom bought over 30 years ago with me as the co-owner. Since they matured in 2020 and I didn't want to go into a bank branch at that time, I waited until 2021 to cash them all in at once. I just sucked it up and paid the taxes on the interest. Done.
You should have reported the interest as 2020 income, the year of maturity. What you did was incorrect.
Gill
How would you even know the amount of interest if you didn't sell it and receive the 1099?
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Re: How to best deal with tax on old IBonds

Post by samsoes »

tj wrote: Fri May 27, 2022 9:01 pm
Gill wrote: Fri May 27, 2022 5:48 pm
SR II wrote: Fri May 27, 2022 5:00 pm I had several thousand dollars in paper EE-bonds that my mom bought over 30 years ago with me as the co-owner. Since they matured in 2020 and I didn't want to go into a bank branch at that time, I waited until 2021 to cash them all in at once. I just sucked it up and paid the taxes on the interest. Done.
You should have reported the interest as 2020 income, the year of maturity. What you did was incorrect.
Gill
How would you even know the amount of interest if you didn't sell it and receive the 1099?
There are various tools to determine the value of your bonds at any point in time. However, your question makes its own case that the bond should be cashed in during the year they mature. Otherwise, it just makes a big tax mess.
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Re: How to best deal with tax on old IBonds

Post by tj »

samsoes wrote: Fri May 27, 2022 9:36 pm
tj wrote: Fri May 27, 2022 9:01 pm
Gill wrote: Fri May 27, 2022 5:48 pm
SR II wrote: Fri May 27, 2022 5:00 pm I had several thousand dollars in paper EE-bonds that my mom bought over 30 years ago with me as the co-owner. Since they matured in 2020 and I didn't want to go into a bank branch at that time, I waited until 2021 to cash them all in at once. I just sucked it up and paid the taxes on the interest. Done.
You should have reported the interest as 2020 income, the year of maturity. What you did was incorrect.
Gill
How would you even know the amount of interest if you didn't sell it and receive the 1099?
There are various tools to determine the value of your bonds at any point in time. However, your question makes its own case that the bond should be cashed in during the year they mature. Otherwise, it just makes a big tax mess.
I would say that it should be auto-redeemed. TreasuryDirect should send you a check and the associated 1099-INT the following spring if the bond has matured.
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Re: How to best deal with tax on old IBonds

Post by samsoes »

tj wrote: Fri May 27, 2022 9:46 pm
samsoes wrote: Fri May 27, 2022 9:36 pm
tj wrote: Fri May 27, 2022 9:01 pm
Gill wrote: Fri May 27, 2022 5:48 pm
SR II wrote: Fri May 27, 2022 5:00 pm I had several thousand dollars in paper EE-bonds that my mom bought over 30 years ago with me as the co-owner. Since they matured in 2020 and I didn't want to go into a bank branch at that time, I waited until 2021 to cash them all in at once. I just sucked it up and paid the taxes on the interest. Done.
You should have reported the interest as 2020 income, the year of maturity. What you did was incorrect.
Gill
How would you even know the amount of interest if you didn't sell it and receive the 1099?
There are various tools to determine the value of your bonds at any point in time. However, your question makes its own case that the bond should be cashed in during the year they mature. Otherwise, it just makes a big tax mess.
I would say that it should be auto-redeemed. TreasuryDirect should send you a check and the associated 1099-INT the following spring if the bond has matured.
TD does auto redeem electronic bonds at maturity, yes. But the question embedded in the quoted posts above refer to paper bonds.
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Re: How to best deal with tax on old IBonds

Post by SnowBog »

tj wrote: Fri May 27, 2022 9:46 pm
samsoes wrote: Fri May 27, 2022 9:36 pm
tj wrote: Fri May 27, 2022 9:01 pm
Gill wrote: Fri May 27, 2022 5:48 pm
SR II wrote: Fri May 27, 2022 5:00 pm I had several thousand dollars in paper EE-bonds that my mom bought over 30 years ago with me as the co-owner. Since they matured in 2020 and I didn't want to go into a bank branch at that time, I waited until 2021 to cash them all in at once. I just sucked it up and paid the taxes on the interest. Done.
You should have reported the interest as 2020 income, the year of maturity. What you did was incorrect.
Gill
How would you even know the amount of interest if you didn't sell it and receive the 1099?
There are various tools to determine the value of your bonds at any point in time. However, your question makes its own case that the bond should be cashed in during the year they mature. Otherwise, it just makes a big tax mess.
I would say that it should be auto-redeemed. TreasuryDirect should send you a check and the associated 1099-INT the following spring if the bond has matured.
For electronic bonds - they essentially do. Well, except send the 1099 - you still need to login and get that...

But for paper bonds - you must physically redeem them. Or alternatively convert to electronic so they'll be automatically redeemed...
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Re: How to best deal with tax on old IBonds

Post by protagonist »

OP....here is an interesting tidbit I just learned. It may not be useful to you, but who knows?
"The IRS lets you avoid paying taxes on interest earned by Series EE and Series I savings bonds when you redeem them if you use the money toward qualified higher education costs for yourself, your spouse, or any of your dependents."
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Re: How to best deal with tax on old IBonds

Post by Gill »

tj wrote: Fri May 27, 2022 9:01 pm
Gill wrote: Fri May 27, 2022 5:48 pm
SR II wrote: Fri May 27, 2022 5:00 pm I had several thousand dollars in paper EE-bonds that my mom bought over 30 years ago with me as the co-owner. Since they matured in 2020 and I didn't want to go into a bank branch at that time, I waited until 2021 to cash them all in at once. I just sucked it up and paid the taxes on the interest. Done.
You should have reported the interest as 2020 income, the year of maturity. What you did was incorrect.
Gill
How would you even know the amount of interest if you didn't sell it and receive the 1099?
The amount would have been the same as you received in the year following maturity because they stopped earning interest. These should have been reported as 2020 income. You don’t get to choose the year after the bond matures.
Gill
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Re: How to best deal with tax on old IBonds

Post by tj »

Gill wrote: Sat May 28, 2022 4:59 am
tj wrote: Fri May 27, 2022 9:01 pm
Gill wrote: Fri May 27, 2022 5:48 pm
SR II wrote: Fri May 27, 2022 5:00 pm I had several thousand dollars in paper EE-bonds that my mom bought over 30 years ago with me as the co-owner. Since they matured in 2020 and I didn't want to go into a bank branch at that time, I waited until 2021 to cash them all in at once. I just sucked it up and paid the taxes on the interest. Done.
You should have reported the interest as 2020 income, the year of maturity. What you did was incorrect.
Gill
How would you even know the amount of interest if you didn't sell it and receive the 1099?
The amount would have been the same as you received in the year following maturity because they stopped earning interest. These should have been reported as 2020 income. You don’t get to choose the year after the bond matures.
Gill
But it sounds like that's exactly what the bondholder chose to do. If they report the bond interest on a tax return that's different from the year of the 1099, it could cause them issues.
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Re: How to best deal with tax on old IBonds

Post by Gill »

tj wrote: Sat May 28, 2022 9:05 am
But it sounds like that's exactly what the bondholder chose to do. If they report the bond interest on a tax return that's different from the year of the 1099, it could cause them issues.
Your approach makes no sense. The interest is correctly reportable in the year of maturity. The 1099 is irrelevant and the tax preparer can simply net it out by showing the 1099 interest and then eliminating it by showing negative interest and explaining it is reportable in a different year. If your theory held, you could simply hold the bonds past maturity and then redeem them in a year favorable to you. 1099's don't control anything. Quite simply, interest on maturing savings bonds is reportable in the year of maturity regardless of what else the bond holder does.
Gill
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Re: How to best deal with tax on old IBonds

Post by tj »

Gill wrote: Sat May 28, 2022 9:13 am
tj wrote: Sat May 28, 2022 9:05 am
But it sounds like that's exactly what the bondholder chose to do. If they report the bond interest on a tax return that's different from the year of the 1099, it could cause them issues.
Your approach makes no sense. The interest is correctly reportable in the year of maturity. The 1099 is irrelevant and the tax preparer can simply net it out by showing the 1099 interest and then eliminating it by showing negative interest and explaining it is reportable in a different year. If your theory held, you could simply hold the bonds past maturity and then redeem them in a year favorable to you. 1099's don't control anything. Quite simply, interest on maturing savings bonds is reportable in the year of maturity regardless of what else the bond holder does.
Gill
As someone who audited several tax returns, the tax preparer and irs are going to have any knowledge of such a bond. They clearly do not have the right mechanisms in place on these paper I bonds to actually enforce that law.
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Re: How to best deal with tax on old IBonds

Post by Gill »

tj wrote: Sat May 28, 2022 9:21 am
Gill wrote: Sat May 28, 2022 9:13 am
tj wrote: Sat May 28, 2022 9:05 am
But it sounds like that's exactly what the bondholder chose to do. If they report the bond interest on a tax return that's different from the year of the 1099, it could cause them issues.
Your approach makes no sense. The interest is correctly reportable in the year of maturity. The 1099 is irrelevant and the tax preparer can simply net it out by showing the 1099 interest and then eliminating it by showing negative interest and explaining it is reportable in a different year. If your theory held, you could simply hold the bonds past maturity and then redeem them in a year favorable to you. 1099's don't control anything. Quite simply, interest on maturing savings bonds is reportable in the year of maturity regardless of what else the bond holder does.
Gill
As someone who audited several tax returns, no tax preparer is going to ask for 30 years of bank statements to determine savings bond interest, and the IRS isn't going to know either unless they happen to be looking at bank statements for some other reason. They clearly do not have the right mechanisms in place on these paper I bonds to actually enforce that law.
In other words, you are saying to ignore the tax laws because you probably won't be caught?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
tj
Posts: 9368
Joined: Wed Dec 23, 2009 11:10 pm

Re: How to best deal with tax on old IBonds

Post by tj »

Gill wrote: Sat May 28, 2022 9:23 am
tj wrote: Sat May 28, 2022 9:21 am
Gill wrote: Sat May 28, 2022 9:13 am
tj wrote: Sat May 28, 2022 9:05 am
But it sounds like that's exactly what the bondholder chose to do. If they report the bond interest on a tax return that's different from the year of the 1099, it could cause them issues.
Your approach makes no sense. The interest is correctly reportable in the year of maturity. The 1099 is irrelevant and the tax preparer can simply net it out by showing the 1099 interest and then eliminating it by showing negative interest and explaining it is reportable in a different year. If your theory held, you could simply hold the bonds past maturity and then redeem them in a year favorable to you. 1099's don't control anything. Quite simply, interest on maturing savings bonds is reportable in the year of maturity regardless of what else the bond holder does.
Gill
As someone who audited several tax returns, no tax preparer is going to ask for 30 years of bank statements to determine savings bond interest, and the IRS isn't going to know either unless they happen to be looking at bank statements for some other reason. They clearly do not have the right mechanisms in place on these paper I bonds to actually enforce that law.
In other words, you are saying to ignore the tax laws because you probably won't be caught?
Gill
No. But that's the reality. There are all kinds of tax laws that taxpayers are ignorant of.
SR II
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Re: How to best deal with tax on old IBonds

Post by SR II »

Gill wrote: Fri May 27, 2022 5:48 pm
SR II wrote: Fri May 27, 2022 5:00 pm I had several thousand dollars in paper EE-bonds that my mom bought over 30 years ago with me as the co-owner. Since they matured in 2020 and I didn't want to go into a bank branch at that time, I waited until 2021 to cash them all in at once. I just sucked it up and paid the taxes on the interest. Done.
You should have reported the interest as 2020 income, the year of maturity. What you did was incorrect.
Gill
Thanks. Noted.
Parkinglotracer
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Re: How to best deal with tax on old IBonds

Post by Parkinglotracer »

If I have some 2000 ibonds that I will have to pay taxes in 2030 at age 69. To avoid paying taxes on them, Can my DW and I give them to our kids who then can roll them over to a 529 plan for their kids if my kids income allows?
ehh
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Re: How to best deal with tax on old IBonds

Post by ehh »

Parkinglotracer wrote: Mon May 30, 2022 6:46 am If I have some 2000 ibonds that I will have to pay taxes in 2030 at age 69. To avoid paying taxes on them, Can my DW and I give them to our kids who then can roll them over to a 529 plan for their kids if my kids income allows?
Treasury Direct indicates one of the events requiring you to pay income tax is "you give up ownership of the bond and the bond is reissued".

https://www.treasurydirect.gov/indiv/re ... htm#report

Appears the answer to your question is "no".
masha12
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Re: How to best deal with tax on old IBonds

Post by masha12 »

fabdog wrote: Fri May 27, 2022 10:50 am Congrats... that's a great problem to have. I know I wish I had more IBonds from when the base rate was in that range.

You can certainly look at cashing in 1 a year to spread the hit out... or 1 on 2030 and 2 in 2031... and the good news is it won't impact your state taxes.

Another path, but complicated, esp if you are leaving instructions, is to start accruing the interest now (a one time hit in the yer you start) and keep accruing. That will spread the hit out. Of course, you have to do that for all savings bonds you hold. Where it can get messy is if you pass and the person handling things doesn't know you were accruing. the 1099-INT that will come when you cash them in shows all the interest, and you have to back out what you've previously accrued. If someone doesn't know that, and has kept up with reporting the accruals, they may pay tax on interest you've already reported and paid tax on

Mike
I didn't think you could do this. I know you could recognize the interest every year from the beginning, but can you report all of the accrued interest in one year and then pay by year after that?

Edited to add: I found the regulations. You can change the tax reporting method.

masha12
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