Savings Bonds Confusion

[kannon]

I thought I knew how interest was taxed. Well almost ....

Thirty plus years ago my FIL bought Savings Bonds for his newborn grandkids. The bonds are in the grandkid name and my wife as co-owner.

We cashed them last year. The 1099 Interest went to us, the funds went to the grandkids. We are fine with paying the taxes on the interest but was wondering if for an audit standpoint the interest should be reported on the grandkid federal and state tax return this year.

I did some reading on this online and was even more confused when it said on one site that the person who bought the bond is responsible. Another said if co-owned, the person who cashes the bond is responsible.

And just when you thought savings bonds were simple .....

Appreciate any insight.

Kannon

 

[statsman]

Yeah, I was wondering something similar. The first few savings bonds (paper) my FIL bought (25-26 years ago) for his grandkids were in the grandkids' names, with the mother as co-owner, and with my FIL's SS number. After that, they were in the grandkids' names and the grandkids' SS numbers. The grandkids expect to cash and pay the tax on the interest on the first few with my FIL's SS number, but we're wondering about the procedure for those.

 

[Jerry1]

I found this on line. Not suggesting it’s authoritative:

Who pays the taxes: US Savings Bonds

Looks like there’s a process to point the income in the appropriate direction.

 

[RE2Boys]

Frankly, the only thing that the Treasury Dept. (and IRS) will care about is that taxes are paid on the interest by somebody. Since you have the 1099INT, and you had the right to cash the savings bond (as co-owner), it is now your responsibility. If you wanted the kid to pay the interest, you should have had them cash the bond. And if the kid is now an adult, why are you in the middle of their business??

You can change who pays the interest by initiating and filing the proper paperwork (new 1099INT) with the IRS. See the "nominee recipient" section in this IRS article. https://www.irs.gov/taxtopics/tc403

BTW, the interest should be taxed on your return the year the bond reached maturity. So if the bond reached maturity in 2015, then you should be amending your 2015 income tax return to report the interest. Would the IRS catch it if you reported the interest in 2018? Probably not, but you mentioned what would pass an audit.

Here is more info regarding who pays tax on the interest and when.
https://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds_eetaxconsider.htm

 

[kaneohe]

I found this on line. Not suggesting it’s authoritative:

Who pays the taxes: US Savings Bonds

Looks like there’s a process to point the income in the appropriate direction.

here's another https://finance.zacks.com/pays-tax-savings-bonds-held-jointly-5266.html I think it generally agrees with the first. I guess the general idea is that the Feds get info from the bank who cashes the bond and whoever issues the 1099-INT. Whoever's SSN is on the 1099 is then responsible for the taxes unless they do the nominee process.............in which they declare the interest to agree w/ the 1st 1099 issued and then subtract it (or a portion) out. Then then have to issue the 1099 to the second person and also the Feds. That way there is a complete trail of where the funds went and who is responsible for them.

The one that is puzzling to me is if grandparent's SSN is on bond but owners are child and grandchild and grandparent is deceased but didn't notify Feds. The 1099 will be issued (I assume) w/ SSN of whoever cashed the bond.......one of 2 co-owners but then there is a conflict with the original SSN .

 

[ivinsfan]

Frankly, the only thing that the Treasury Dept. (and IRS) will care about is that taxes are paid on the interest by somebody. Since you have the 1099INT, and you had the right to cash the savings bond (as co-owner), it is now your responsibility. If you wanted the kid to pay the interest, you should have had them cash the bond. And if the kid is now an adult, why are you in the middle of their business??

You can change who pays the interest by initiating and filing the proper paperwork (new 1099INT) with the IRS. See the "nominee recipient" section in this IRS article. https://www.irs.gov/taxtopics/tc403

BTW, the interest should be taxed on your return the year the bond reached maturity. So if the bond reached maturity in 2015, then you should be amending your 2015 income tax return to report the interest. Would the IRS catch it if you reported the interest in 2018? Probably not, but you mentioned what would pass an audit.

Here is more info regarding who pays tax on the interest and when.
https://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds_eetaxconsider.htm

Gee the OP said they were fine with paying the taxes and just asked the proper tax procedure for paying them.And "frankly" they are hardly in the middle of the kids business, do you have your grumpy pants on today?

 

[OldShooter]

File in the way you prefer, consistent with the 1099s or whatever other reporting you receive. Wait. In the highly unlikely event that you get audited and they complain, apologize and pay as necessary. As long as you filed in good faith, they are very unlikely to assess penalties.

IMO life is too short to try to figure out the excruciating details of any government's behavior.

 

[ivinsfan]

File in the way you prefer, consistent with the 1099s or whatever other reporting you receive. Wait. In the highly unlikely event that you get audited and they complain, apologize and pay as necessary. As long as you filed in good faith, they are very unlikely to assess penalties.

IMO life is too short to try to figure out the excruciating details of any government's behavior.

+1..and remember they say the IRS will take 18 months to catchup from the last government shutdown..