Financial strategy may benefit bond owners
Spring Lake Heights, New Jersey (PRWEB) December 05, 2013- According to SavingsBonds.com, December is Savings Bond Planning Month. To kick off the month, SavingsBonds.com has revealed a little known financial strategy of reporting interest earned annually on savings bonds, which may help owners avoid having to pay large amounts of taxes when cashing in bonds.
U.S. Savings Bonds are subject to federal income taxes when they are either cashed in, or reach final maturity, whichever comes first. They are free from state and local taxes. The difference between the purchase price and the cash-in value is considered reportable interest. When savings bonds are cashed in, a 1099-INT is usually issued for any interest earned amount over $10. By reporting the federal interest earned annually, bond owners can avoid having to report a large amount of interest income in the year they are cashed in.
“Unfortunately, for millions of bond owners, especially retirees, the amount of interest income from cashing in savings bonds, along with additional income generated from other investments, such as 401K’s and pensions, could negatively affect their tax bracket,” says Jack Quinn, SavingsBonds.com Founder and CEO. He adds, “Individuals must also consider additional income amounts from spouses, if filing jointly.”
Take care with reporting
To start the process of reporting interest earned annually, an individual must first determine if it makes financial sense to report all of the interest earned to date for their entire portfolio of bonds in a specific year, on their federal income tax return. Then each year thereafter, they must report the interest earned for all of their bonds, in that year on their tax return every year until redemption. In the year an individual cashes in their bonds, they will include the previous year’s tax returns (which indicates the annual interest income reported for that year), and thus may result in not having to owe any large amount of taxes.
SavingsBonds.com offers a Savings Bond Inventory Report that will indicate both the lifetime, as well as the year-to-date, interest earned amounts. If an individual would like to elect to report interest annually, it is important to review their Inventory Report any time in December of every year, which indicates the total interest earned amounts accumulated in that year.
For most people, savings bonds may seem like a very simple and easy investment. They are often stashed away for education, retirement or rainy day needs. However, savings bonds, like most other investments, need financial planning too.