If you cashed in any savings bonds, or are holding any that have matured in 2015, here are three important tax tips you should know before filing your taxes:
Don’t forget to include savings bond 1099-INT amounts on your Federal Income Tax Return. If you cashed in any PAPER savings bonds in 2015, you should have received a 1099-INT for all of the interest earned. The form should have been issued either on the spot at the time of redemption, or mailed to you in the first few months of 2016. If you have not received the 1099-INT form, contact the financial institution where you redeemed the bonds. If you mailed in the bonds or redemption, contact the Treasury Department at 844-284-2676.
If you redeemed electronic savings bonds, or if any electronic bonds reached final maturity, it is your responsibility to print out the 1099-INT from your Treasury Direct Account. This includes any paper bonds that were converted to electronic bonds. A 1099-INT will not be mailed for electronic bonds.
U.S. Savings Bonds are subject to federal income tax only. Savings bonds are free from state and local income taxes. The difference between the purchase price and cash in value of a paper savings bond is considered report-able interest. There is no special tax rate for savings bonds. Savings bond interest income should be reported as “ordinary income” on a Federal Income Tax Return in the year the bond is redeemed or reaches final maturity, whichever occurs first (see savings bond taxes below).
Regardless of any previous tax reporting – all of the interest earned will be included on the 1099-INT. Upon redemption, the1099-INT amount will be for ALL of the interest earned since the bonds issuance. If you have chosen to report interest annually, you must include copies of all applicable prior Federal Income Tax Returns, which indicates the amount of interest previously reported.
If you received bonds as a gift or inheritance, it would be prudent to determine if any interest was previously reported. While reporting interest annually is not a common practice, you (or your heirs) would not want to be subject to double taxation. Keep copies of all applicable prior tax returns and consider alerting any co-owners, beneficiaries and heirs about any interest already reported.
If you have previously reported interest from savings bonds in your or your child’s name, refer to IRS Publication 550 and consult with a tax professional regarding interest reporting requirements.
Author’s Note: Check final maturity dates. It would be wise to learn final maturity dates on all bonds in your portfolio. Understanding final maturity dates and the tax implications will allow you to do proper financial planning. Consider using SavingsBonds.com’s complimentary online Savings Bond Calculator. For ongoing, easy bond management, use SavingsBonds.com’s unique VIP Membership©
Note About Savings Bond Taxes: 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.
If your savings bonds are well beyond their final maturity dates, and you have not reported the interest, you may be able to file amended tax returns. Consult with a financial or tax professional regarding rules and regulations.
Many bond investors forget about savings bonds they cashed-in last year, especially if the 1099-INT was issued on the spot at redemption. Additionally, those bonds may have been worth a lot more than their face value, which is often a pleasant surprise. However, having to report a large amount of interest can create an unpleasant tax reality, especially for those in a lower income tax bracket. Unfortunately, once bonds are redeemed, there is no going back.
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 the signature monthly emailed Bond Statements©, providing portfolio updates, pertinent financial information, along with important 3-month advance maturity alerts and taxation .