I Bond Purchase Scheme?

Nonchalance
  |     |   27 posts since 2020

I want to use my tax refund to purchase $5,000 worth of I Bonds. I computed my taxes and have, in round numbers, a $1,000 refund due. Before I file, can I make an estimated tax payment for $4,000, bumping up my tax refund to $5,000, and then use the refund for I Bonds? Anything improper about that?



Answers
CuriousDave
  |     |   87 posts since 2018
Yes, you can make a "late" payment of estimated tax now (using a 2021 voucher 1040-ES) and when you file your 2021 tax return, you can request that your refund be applied to purchase I-Bonds. The bonds will show an issue date of 2022. There is nothing on the instructions for Form 8888 (the form that is filed with your tax return on which you request application of your refund to purchase I-Bonds) that asks for the date your tax payments for 2021 were made, and also  nothing in the instructions for Form 1040 that precludes you from doing this, and the IRS, to date, has issued no ruling on this. Yes, you can instead make the $4,000 payment with an extension payment, but the current Form 1040 does not include a separate line for entering extension payments, and there is nothing in the other line instructions that addresses where the extension payment must be entered. The form wll probably be updated later to include such a line. After all, it's a contradiction to apply for an extension of time if you are going to file your tax return by the original due date. The danger for you is that the IRS may not process your return until long after April 18 if you have requested an extension of time to file. It has recenty admitted to not yet having processed 24 million returns for 2020, and it's unlikely to process extended returns for 2021 before processing the 2020 backlog. What that means for you is that the issue date of your paper bonds may be a date long after April, so your I-Bonds will not start earning interest until then. Also, because the bonds will have an issue date past April, it's possible that the inflation rate component may be lower by then.
alan1
  |     |   684 posts since 2015
Thank you CuriousDave. Can the 2021 1040-ES voucher be filed electronically? I had thought, perhaps erroneously, that the voucher could only be used for payments that are made by check or money order _and_ submitted by mail. If I'm correct (and I am _not_ claiming that's the case), the possibilities of delay, whether due to the IRS or the US Postal Service, may be as great (or greater) than electronically filing for an extension.

(As I indicated in my initial comment, I do not know whether filing for an extension is an advisable, or even viable, approach. But it might be worth exploring. And it might not.) Once again, thanks for your comment.
GreenDream
  |     |   188 posts since 2019
"Can the 2021 1040-ES voucher be filed electronically?"

yes.

https://www.irs.gov/payments/pay-taxes-by-electronic-funds-withdrawal

"Up to four Form 1040-ES quarterly tax payments for TY 2021 may be submitted with the TY 2020 e-filed return."

Though it's not clear from reading that if you can do so separate from filing your tax return.

H&R Block suggest you can make estimated payments in the following ways:

https://www.hrblock.com/tax-center/irs/forms/estimated-tax-1040es/

"Apply your 2021 refund to your 2022 estimated tax.
Mail a check or money order with Form 1040-ES: Estimated Tax for Individuals.
Use the Electronic Federal Tax Payment System (EFTPS) to submit payments electronically. Visit www.eftps.gov or call 1-800-555-4477. You can make payments weekly, monthly, or quarterly. You can schedule payments up to 365 days in advance.
You can learn more about credit card options at www.irs.gov. You might be charged a convenience fee for using your credit card."

So maybe you can do it through the EFTPS system?
CuriousDave
  |     |   87 posts since 2018
Yes, EFTPS is good for making payments as IRS gets the money right away and you do not have the issue of late delivery by the USPS. 
Note that payment is always separate from the filing of the tax return. My CPA tinformed me that the IRS separates its processing and collection functions to ensure good internal controls and prevent fraud. Regardless of your method of payment, the money always goes to a location that is different from the address to where the tax return is processed. Even if you use an online tax prep service, that service transmits the return electronically to a location that is different from the location where your money goes.
CTM
  |     |   129 posts since 2010
This link to the IRS PayDirect site will get you started.

https://directpay.irs.gov/directpay/payment?execution=e1s1

In the dropdown box for Reason for Payment, select Extension. The next dropdown box, Apply Payment To, will be filled in with 4868. The final dropdown box, Tax Period for Payment, will be filled with 2021.

You can continue through the process.
alan1
  |     |   684 posts since 2015
Before determining whether what you wish to do is "proper", I suggest you ascertain if it is possible. It is now 2022. How would you make an estimated tax payment for tax year 2021?

You may wish to explore filing for an extension of time to file a 2021 income tax return, and including a payment with the extension request.
Ltssharon
  |     |   65 posts since 2020
Thankyou. Maybe next year I will overpay my 4 estimated quarterly payments. There are so few ways to keep up with inflation at all
alan1
  |     |   684 posts since 2015
Ltssharon -- it's not necessary to overpay your "4 estimated quarterly payments". You need only overpay the final quarterly payment.
Kaight
  |     |   519 posts since 2011
Pursuant to this topic generally, I just want to state some rather obvious stuff. Please go easy on me if this is all so obvious as to annoy you:

The current I bond interest rate is over 7%. So if you're able to buy your bonds prior to first of May you will earn that high rate for your first six months. The rate following the May first reset is today unknown. But inflation is very bad and no immediate relief appears in the cards between now and first of May. So it is reasonable to assume that, even following the reset, it will be a high, desirable interest rate. The real unknown is the rate following the November first reset. That is too far out to allow making of a decent guess. Bottom line, best case is I bond acquisition prior to first of May. That will give us at least a solid year of high returns in all likelihood.

The wrinkle comes because the IRS is so overwhelmingly backed up. I know for a fact they are still processing some 2019 return stragglers. And of course everyone is aware they are 24 million returns behind for 2020. So what's an I bond purchaser to do?

It is critical you file electronically and absolutely ASAP. That is your only chance. I filed electronically last week, for example, and I'm far from certain my bonds will be issued prior to first of May. But I did the best I could and fingers are crossed. You can only do your best. But do not dawdle. Time is NOT on your side in this matter.

My hope is by filing electronically I might have a chance. Most of those 24 million returns, as I understand things, are on paper. Electronically filed returns are processed faster provided you make zero errors. Any error which results in need for human intervention almost surely will push you past the May first reset. So file ASAP, file extremely carefully, and good luck.

If my bonds are issued after first of May it'll be a disappointment. But I can live with that outcome. It's a crapshoot. Sometimes you win, other times you do not. It's the IRS for goodness sake. There are no miracles.
alan1
  |     |   684 posts since 2015
Kaight wrote: "My hope is by filing electronically I might have a chance" [to obtain bonds with an issue date no later than April 2022]. As Kaight indicated, a key phrase is "might have a chance".

The following IRS timetable was "Last Reviewed or Updated" on November 17, 2021. I do not know how accurate it was then, and I doubt it's gotten speedier. From:
"Now you can buy U.S. Series I Savings Bonds for anyone with your tax refund"

Your request will be processed in two parts

Part 1: Generally, you will receive the bonds after you receive the remainder of your tax refund from the IRS. The IRS will process the portion of your refund that you are not using to buy savings bonds. This amount will be deposited into the account you designate or sent to you in the form of a paper check. Go to Where’s My Refund? or call 800-829-1954 to see if Part 1 is complete.

Part 2: The IRS will forward your request for savings bonds to the Treasury Retail Securities Site. It will take them up to three weeks to send your bonds to you at the address on your tax return. You can call the Treasury Retail Securities Site at 844-284-2676 to check on the status of your bond issuance.
https://www.irs.gov/refunds/now-you-can-buy-us-series-i-savings-bonds-for-anyone-with-your-tax-refun...
Choice
  |     |   657 posts since 2020
Knight, I mailed my paper return last week and have a receipt dated this week….mine is straight forward…5k bonds rest is used for 2022 return…no payment to me. $5 k in paper ibonds is nice but it won’t break the bank. I use it mostly for paper bonds for relatives. I maxed out my 6 TD accounts in early January with the intent to have flexibility when November rates come out..if greatly lower than competitive CD rates I’ll look at January 2023 to redeem


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