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Reminder: Don’t forget interest from savings bonds on your tax return!

Like I did. The US Treasury does not send out 1099-Interest forms, and I forgot to include the income from I-Bonds that I sold last year in my tax return. I completely forgot because I didn’t receive a 1099 form. I remembered when reading an article about savings bonds, and then found out you have to download your forms from the US Treasury website. So, now it looks like I will have to file an amended return. The only good news is that I won’t owe any more state taxes.

Comments

  • @Tarwheel I take those bonds weren't sold through a brokerage ?
  • Most of our very old Savings Bonds have matured. We held then in the paper form and never bothered to convert them into electronic form. So, when we cashed them on maturity at our local bank, we got 1099 from the bank.

    For the new I-Bonds that I bought a couple of years ago, I won't be around when they mature, so my heirs will have to deal with Treasury Direct (TD). (-:)

    Treasury does what it feels like. I think it should also mail 1099 for transactions, i.e. just putting the info on the TD website shouldn't be enough. After all, if one gets locked out of TD, it may be months before the access may be restored. And the semi-public USPS needs more business.

    A few years ago, the SEC fined Gabelli BECAUSE it had posted some info only on its website, and didn't bother to provide that info by mail. After paying the fine, Gabelli now knows better.

    But who would dare to fine Treasury?

    https://www.treasurydirect.gov/1099/
  • If you inherit savings bonds, make sure that you know whether the deceased has already paid taxes on savings bond interest up to the date of inheritance.

    That can happen in two ways.
    https://www.irs.gov/publications/p559#en_US_2023_publink100099599

    1. Investors (including the decedent) have the option of declaring interest income annually. There's little benefit I see in that, unless the investor is expecting to be in a significantly higher tax bracket when the savings bonds are finally sold or they mature.

    2. The person (executor, administrator) filing the decedent's final return can choose to include all interest up to date of death in the decedent's income for the year of death. This can be advantageous: the decedent is likely retired and may be in a lower tax bracket than the heirs and/or taxes the decedent pays reduces the size of the estate. That matters if the estate is large enough to be taxed (estate tax or inheritance tax).

    If taxes on some of the interest was paid by the decedent, then on your 1040 Schedule B (interest income) you declare the full amount on your 1099-INT, subtotal all the interest, and then below the subtotal you include a line for the taxes already paid:

    U.S. Savings Bond Interest Previously Reported (dollar amount)
    https://www.irs.gov/publications/p550#en_US_2022_publink100010051

    If you're an executor, don't forget about #2 above.
  • My I-Bonds were bought through Treasury Direct, and all transactions are online. At the time I sold them, I assumed they would send me 1099-Interest forms in the mail. They didn’t and I forgot about the I-Bond sales when I originally filed my taxes this year. I remembered when reading an article about taxes, so I checked with Treasury Direct and found out that you have to download the forms at their website.

    Since I e-filed, I had to go back to my original return (on TaxAct) to amend it. Now I will owe federal taxes, and I already received a refund from my original return. Now I have to repay the refund and some additional taxes. What a pain, but at least I won’t face any fines, penalties or interest on late payments.
  • edited March 10
    Derf said:

    @Tarwheel I take those bonds weren't sold through a brokerage ?

    I-Bonds can only be bought and sold online through Treasury Direct.

  • I think it {TreasuryDirect] should also mail 1099 for transactions

    TreasuryDirect is not getting special treatment. Any business that issues 1099 is permitted by the IRS to deliver the forms strictly electronically (via email or web access) upon consent of the taxpayer.

    https://www.onlinefiletaxes.com/Electronic-Delivery-of-1099-Recipient-Statements.htm

    Many institutions offer a choice of delivery by paper or by electronic means and explicitly ask for your consent to deliver electronically. Others make consent a condition for opening an account - much as institutions make agreeing to arbitration a condition for opening an account. You're free not to do business with an institution if you don't like its terms.

    TreasuryDirect is one of those institutions that makes consent to electronic delivery a condition of opening an account. One may not like it, but this is completely legal. Read the fine print:
    How will my interest income be reported for tax purposes?

    When you open a TreasuryDirect account, you consent to receive the appropriate tax reporting forms by electronic means. The form will be available in a printable format through your TreasuryDirect account. An online IRS Form 1099 is provided for your Primary account and each Linked account.
    https://www.treasurydirect.gov/indiv/help/treasurydirect-help/faq/#id-interest-earned-and-taxation-891219
  • I-Bonds can only be bought and sold online through Treasury Direct.

    You can still get paper bonds with your 1040 refund (up to $5,000 per year). But you have to hope that they don't get lost in the mail (one of mine did). Then to cash them in you either have to mail them to TreasuryDirect or try to cash them at a bank.

    Here's Rob Copeland talking with Kai Ryssdal (Marketplace) about the problems he had doing just that.

    "what’s happened over the past few years is a lot of banks are starting to reject [savings bonds]. ... when a bank does that transaction [cashes bonds] for you, they make exactly zero cents. And in many cases, these banks just don’t want to do it anymore."
    https://www.marketplace.org/2023/10/12/got-old-savings-bonds-lying-around-good-luck-cashing-them/

    And the full NYTimes article that Copeland wrote:

    When Did Cashing Savings Bonds Become So Impossible?
    https://www.nytimes.com/2023/10/07/business/cashing-savings-bonds.html
  • Thanks for citing the auto-consent for TD.

    But I hate these auto-consents. Almost all websites have them before going into them. I mostly click yes w/o ever reading what I consented to.

    Some courts have also ruled that auto-consents cannot take away some basis rights. So, the arbitration clauses in brokerages, routine nondisclosure disclosures on hiring, etc have been rejected in some cases.

    I think getting 1099 in mail is a basic right that I don't readily waive - unless forced by Vanguard or just assumed by TD.
  • I redeemed a very old EE savings bond last year, and the UST sent me a 1099 form last month.
  • We cashed 3 paper $10,000 Bonds after my mother died. The bank required all three of us to sit in front of an officer fill out pages of junk notarize it all etc. It took over an hour. What a pain.
  • If you do not cash your (paper) IBonds when they mature, do you automatically owe taxes on the accrued interest? I am guessing yes but thought I should ask.
  • When Savings bonds mature, taxes are due whether cashed or not. Moreover, you aren't getting any interest credits. That is the worst case. I cashed them on the 1st or 2nd day of the maturity months.

    "16. How are savings bonds taxed?
    Savings bond interest is exempt from state and local income tax. Savings bond interest is subject to federal income tax; however, taxation can be deferred until redemption, final maturity, or other taxable disposition, whichever occurs first. You also have the option of claiming interest annually for federal income tax purposes. Savings bonds are not exempt from any applicable estate, inheritance, gift or other excise taxes, whether federal or state. Tax benefits also may be available when redemption amounts are used to pay education expenses."
    https://www.irs.gov/refunds/using-your-income-tax-refund-to-save-by-buying-us-savings-bonds
  • edited March 10
    Thanks, Yogi,
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