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Why You Should Review Your Savings Bonds In December

SavingsBonds.com has declared, “December Is Savings Bond Awareness Month.”  It is the best time to review savings bond investments to avoid potential tax time headaches and take advantage of beneficial tax reporting options.

Beneficial tax reporting options

1. All of the interest earned on redeemed savings bonds or those that have reached final maturity (even if not yet redeemed) need to be reported on a Federal Income Tax return.
Despite access to complimentary on-line bond calculators and management tools, most bond owners don’t understand the IRS rules and potential tax liabilities associated with savings bonds.

  • Paper savings bonds are often worth several times more than their face value (amount printed on the bond).
  • The difference between the purchase price and the cash-in value is considered report-able interest income.
  • A 1099-INT is issued for all of the interest earned when redeeming bonds.
  • In December, investors should review all redeemed (paper) bonds for that year as well as the interest earned amounts that will need to be reported at tax time via their SavingsBonds.com Membership©.

2. Retirees or individuals on fixed incomes, should do “what if” scenarios to determine if cashing in some bonds now may help avoid large interest income reporting requirements in the future.

A Cash-In Report© allows investors to run different redemption scenarios from their bond portfolio. By entering an amount of money you want, the report suggests the best bonds to redeem (based on final maturity and overall interest rate performance). The amount of interest earned for those (potentially) redeemed bonds, is indicated on the report.

Cashing in some bonds now, prior to the bonds final maturity may be a sensible solution to avoid having to report a potentially large amount(s) of interest income in any single year when bonds reach their final maturity and interest should be reported (according to IRS rules).

3. Consider reporting savings bond interest earned annually for yourself and your children.

Few are aware of the option to report the interest earned annually on their savings bonds. By reporting interest annually:

  • You 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 on any future bond purchases) in your portfolio.
  • You must write to the Treasury and receive approval before opted out of annual interest reporting.
  • For those that are on – or about to be on – a fixed income, annual interest reporting could be a wise decision.
  • Parents may want to consider reporting the interest annually on a child’s interest income, due to their tax exemption (check with a tax or financial professional on this issue).
  • Many bond owners also don’t take advantage of the annual interest reporting option because 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 investor’s 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.

About SavingsBonds.com:

SavingsBonds.com is an online financial bond management company providing essential U.S. Savings Bond information since 1992. For over 26 years, bond experts have created various consumer programs, tools and services not offered elsewhere, including an online complimentary savings bond calculator, providing cash in values with important financial information presented on a personalized, color-coded, Savings Bond Inventory Report. Unique savings bond management services include signature monthly summary emailed Savings Bond Statements, which help bond owners maximize their investment, avoid losing money and paying unnecessary taxes.

By Jackie Brahney, Marketing Director, SavingsBonds.com jbrahney@savingsbonds.com @savingsbondsgal

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