savings bonds declares December as U.S. Savings Bond Month

Posted on November 19, 2015 declares December as U.S. Savings Bond Month. This is the best time to check out ones savings bonds to avoid potential tax time headaches and take advantage of beneficial tax reporting options. Here are three important reasons why:

1. All of the interest earned on redeemed savings bonds or bonds that have reached final maturity (even if not yet redeemed) need to be reported on a Federal Income Tax return.

Despite access to on-line bond calculators and management tools, most bond owners continue to hold or cash in bonds without knowing the IRS rules and potential tax liabilities.

Many older paper savings bonds can be worth a lot more than their face value (the amount printed on the bond). The difference between the purchase price and the cash-in value is considered reportable interest income. Receiving more money than expected can be serendipitous. However, when the 1099-INT is issued  either on the spot at the financial institution (or mailed early in the following year)  for paper bonds, it can be an unpleasant financial surprise.

For electronic bonds, investors must access their Treasury Direct account and print out their own 1099-INT. Unlike paper bonds, electronic bonds will automatically be redeemed at maturity.

Each December, investors can review a list of redeemed (paper) bonds for that year as well as the interest earned amounts that will need to be reported at tax time via their VIP Membership©.

2. Retirees or individuals (or those planning to be) on fixed incomes, should do what if scenarios & consider cash in and tax reporting strategies to avoid large interest income reporting in a given year.

SavingsBonds.coms Cash-In Report© allows investors to enter and run different redemption scenarios from their bond portfolio. By entering an amount of money you would like to receive, the report suggests the best bonds to redeem (based on overall interest rate performance). The amount of interest that will need to be reported IF the bonds selected were actually cashed in is also provided.

Planning cash-in and tax reporting strategies in December could be a very smart financial decision. Cashing in or reporting interest now, prior to final maturity, may be a sensible solution to avoid having to report a potentially large amount(s) of interest income in ant single year.

3. Consider reporting interest earned annually on all savings bonds you or your children own.

Few bond owners are aware of the option to report the interest earned annually on their savings bonds. By reporting interest annually, a bond owner may not owe any federal taxes when the bond(s) are redeemed, if executed properly. Reporting interest annually can start at any time prior to a bonds final maturity. Once elected, all the lifetime interest earned since issuance on all bonds in a portfolio will need to be reported. Each year thereafter, annual interest earned amounts must be reported on the bonds (and any future bond purchases) in an individuals portfolio until forms to opt out of annual reporting are submitted and approved by IRS. For those that are on  or about to be on  a fixed income, annual interest reporting could be a wise decision. Parents may also want to consider reporting interest annually on their childs income tax return because each child has an exemption before they are required to pay any taxes. Individuals should check with a tax or financial professional on this issue.

Many bond owners dont take advantage of the annual interest reporting option because they didnt know about the option and it used to be a very cumbersome (and sometimes costly) task to determine the lifetime and annual interest earned amounts. Annual interest amounts can now be quickly determined each December by reviewing ones Savings Bond Inventory Report©.

Checking savings bonds during the holiday season may not be at the top of most investors lists. However, by reviewing a bond portfolio each December, investors may be able to take advantage of possible cash in and tax planning strategies. This could result in being a lot merrier during tax time and for years to come.

By Jackie Brahney, Marketing Director, @savingsbondsgal


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