Pay tax as you go on I-bonds, how to see earned interest?

[SnowballCamper]

Anyone know how to see the earned interest on a bond for only one year in treasury direct?

From the website: Tax information for EE and I bonds — TreasuryDirect

Reporting the interest every year​

You may choose to report the interest every year. For example, you may find it advantageous to report interest every year on savings bonds in a child's name. The child may be paying taxes at a lower rate than will be true years later when the bond matures.

But you will not get a 1099-INT every year. You only get a 1099-INT at the end.

• If the savings bonds are in a TreasuryDirect account, you can see the interest earned each year in the account.

I filed a tax return for the kiddo almost a decade ago for the first year, and didn't since then because it wasn't reportable (below the $1300 or so). But she has earned income this year, so is filing for herself. My googling wasn't fruitful, but maybe somebody here knows?

 

[audreyh1]

Initially the earned interest is the current value minus the initial amount, check shortly after Dec 31. After that you would have to track the annual amount at the end of each year and calculate the annual gain.

I think you would have had to file every year to report the interest earned regardless of the total amount.

 

[SnowballCamper]

In pub 550 it says

Choice to report interest each year. The choice to report the accrued interest each year can be made either by your child or by you for your child. This choice is made by filing an income tax return that shows all the interest earned to date, and by stating on the return that your child chooses to report the interest each year. Either you or your child should keep a copy of this return.

Unless your child is otherwise required to file a tax re- turn for any year after making this choice, your child does not have to file a return only to report the annual accrual of U.S. savings bond interest under this choice. However, see Tax on unearned income of certain children, earlier, under General Information. Neither you nor your child can change the way you report the interest unless you request permission from the IRS, as discussed earlier under Change from method 2.

So yeah, I guess I was supposed to check the balance on Dec 31, 2023. OOPS!

 

[audreyh1]

Well you should know what % interest was earned every month based on which month the IBond was originally purchased and calculate back. Gets tricky with the compounding.

https://www.treasurydirect.gov/files/savings-bonds/i-bond-rate-chart.pdf

 

[SnowballCamper]

Yes, that's my last resort...

 

[audreyh1]

I always have to study up the compounding formulas when I try to figure out something like this as I never remember.

I update my IBond values in a spreadsheet every quarter.

 

[homestead]

I used these two sites for calculation of ibond interest.
Calculate the Value of Your Paper Savings Bond(s)
I Bonds Home $10,000

 

[audreyh1]

Hey that should do it!

 

[joesxm3]

If you decide to pay annually you need to back pay all your I-Bonds when you start. That keeps me from doing it.

 

[SnowballCamper]

Thanks! I was wary of the TD paper bond calculator because it seemed to emphasize *Paper* but the other link sure works for me as good enough.

 

[SnowballCamper]

If you decide to pay annually you need to back pay all your I-Bonds when you start. That keeps me from doing it.

What does "back pay" mean?

 

[Sunset]

What does "back pay" mean?

It means claim all the interest earned on the bond from the beginning of the bond.

Your plan of "claiming" the interest each year (but not filing tax return as too low) won't really work as all the interest is reportable at the end of the bond.
There is the claiming per year, but a person would have to file a return each year claiming it. By not claiming it in a tax return that was not filed, it's pretty hard to say you claimed it.

 

[Gumby]

What does "back pay" mean?

If you start paying taxes on I-Bond interest yearly, you have to pay taxes on any interest accrued in years prior to the year you start. i.e. - you have to pay the back taxes. But you can wait to pay interest in the year you redeem the bond. Then you pay taxes on all the interest for the entire time you owned it (at your current marginal rate). I chose the latter, but some may want to take advantage of lower marginal rates by paying taxes every year along the way, rather than have one lump sum at the end drive them into a higher bracket.

I also think there may be a problem due to not filing returns at all, but I have no hard cite for that. Maybe you could ask the IRS.

Edit to add: the eyebonds site is most helpful in figuring out the interest that accrues every year.

 

[Sunset]

OP could file a previous tax return (go back 3 years) and all the subsequent years.
It would minimize the tax, which seems to be the goal.

 

[joesxm3]

Not positive but I think if you have more than one series I bond you need to do the same for all of them including paying up all the previous years'' interest if you start annual paying.

 

[audreyh1]

What does "back pay" mean?

Not positive but I think if you have more than one series I bond you need to do the same for all of them including paying up all the previous years'' interest if you start annual paying.

Probably just pertains to this child’s account, otherwise why would the child be filing taxes.

 

[audreyh1]

OP could file a previous tax return (go back 3 years) and all the subsequent years.
It would minimize the tax, which seems to be the goal.

The 550 quoted above indicates tax returns need not be filed just to report the interest.

 

[audreyh1]

OP could file a previous tax return (go back 3 years) and all the subsequent years.
It would minimize the tax, which seems to be the goal.

The pub 550 quoted above indicates tax returns need not be filed just to report the interest

 

[maywood]

It's very easy, all you need to do is use the link Homestead posted to calculate the value of the bond(s), enter 12/24 for the date and it will show you year-to-date interest. You can enter any date in the past in the calculator. I've been reporting interest every year for my two children (as you said, didn't file if they were not required to file, now they are 29 and 32 with good jobs so they owe tax on the interest each year but I still believed they saved tax by not paying for many years when they were younger (since that's all the income they had.))

 

[rubytuesday]

What I have been doing is to take the value of my iBonds on Dec 31 of the tax year, and subtract the initial investment - this is my total interest on iBonds in all the years so far. I report that value as the "US savings bond interest" in 1040 Schedule A. In the next line I write "subtotal", and add up the bank interest and iBonds interest. In the the next line I write "US savings bond interest previously reported", and in this line I report the amount x of interest on iBonds which I reported in the previous years. Then I subtract the amount x (iBonds interest I reported in previous years) from "subtotal", and write the result in line 2 of Schedule A.

I have been doing that for many years, so I don't remember any more in which IRS publication I saw instructions for this (maybe Pub 550? - not sure), but the instructions seemed pretty clear. The IRS never questioned it.

 

[rubytuesday]

I should add that I get the Dec 31 value of my iBonds by logging into my online account at TreasuryDirect.gov. I thought that was straight-forward. What other value could the bonds have at the end of the tax year except what is listed in the account on the last day of the year?

If you are reporting the interest on iBonds annually, the IRS requires to report the total interest on iBonds since they were purchased, and the total amount of interest on iBonds reported in the previous years (which is subtracted from the sum of interest from all sources in Schedule A).