I'm trying to complete 2022 1040 on Turbo Tax. I understand that you only get 1099 when you cash in I Bond. I want to report interest annually. Who is the payer (Treasury Direct)? Is there an address? Is there a EIN or TIN for Treasury Direct? Do I just indicate that the number I'm entering is I Bond interest?
Answers
You would need to notify IRA that you are changing the Method of the Accounting.
You would need to consult with CPA if it is possible and how to make a change in Accounting Method for specific income or the change would be applicable to all income per Taxpayer Identity.
You would need to keep you records until Bond is redeemed to calculate and deduct Taxes previously paid... for 30 years if you keep Bond till final maturity.
Why don't you redeem annually the portion of Bond equal to annual interest earned, or in some other increments?
Let me know, please, how it works and if it is worthwhile an effort.
https://www.treasurydirect.gov/savings-bonds/tax-information-ee-i-bonds/
also irs publication 550 , page 7
You can make this decision yourself depending on what is important to you. Or consult a CPA if you wish not to make this decision yourself. I am not trying to convince anyone to do what I am.
I'm curious myself how it works, although navigating and interpreting volumes of IRS publications is pretty inefficient way of improving the return.
I would rather invest the effort into increasing "tax burden" by increasing inheritable estate.
I like @CTM point that prepaying taxes today amounts to partially giving up the compounding and discounting current and future inflations.
of course every situation is personal and every decision is individual..., where "7-9 years" time horizon is alarmingly precise!?
Decided, that while it is viable, my effort should rather be invested into generating more taxable return.
I am "happy" to pay more taxes for as long as it corresponds to higher Income. The Socialism' aspect of taxes doesn't burden me much. The Socialists' propaganda for the benefits of not having Taxable income or having Taxable Income and Income Tax on Equitably fair basis would bother me more!
of course every situation is personal and every decision is individual
While I agree that partial redemptions can be a good alternative to annual interest reporting particularly as it gives you more flexibility in planning how much taxes to pay in any given year (and thus something that md2121 might want to consider), in Ltssharon's case not so much as each partial redemption includes proportional amounts of both principal and interest, meaning less principal is left for the heirs while the same proportion of taxable interest for decades worth of accrual remain (even if the total amount of both is now lower).
As I understand Ltssharon's posts, the object is to leave the value of the bonds to the heirs without leaving them a huge tax bill/burden to go along with it.
So, for what Ltssharon wants, annual reporting is not necessarily a bad way of going about it, IMO. It takes care of all the tax on prior years interest, leaving the heirs to only have to worry about any interest that accrues while they own the bonds. The downside is the added efforts in properly reporting it (and making sure the heirs know that the prior years taxes had been paid least they end up paying it again) and the added tax burden in the present for Ltssharon (as all savings bonds will have to be reported annually from here on out and taxes on all the prior years interest would need to be accounted for).
If you inherited any of your ibonds, be sure to read IRS publication 550, page 8, column 3. Pull out the estate taxes of the person you inherited from. Figure out if they already paid taxes on the ibonds you inherited from the issue date to the date of their death. The answer to that makes a difference in how much interest you owe taxes on . Hope this helps.
Since you didn't give a reason for why you want to report interest annually. you may want to consider the alternative, mentioned by myself and others, of doing partial redemptions each year. That way you can take on as much or as little ibond tax burden as you are comfortable with for your current year tax situation (plus you'll get a 1099 instead of having to figure it all out on your own).
I’d like to understand your, and ltssharon’s, preference for paying taxes yearly instead of when the savings bond is cashed or matures. I believe the tax deferral feature of I-Bonds (or savings bonds in general) is the one major benefit compared to TIPS or plain vanilla Treasury securities. (Yes, I know TIPS can go negative, but they also have a much larger spread than I-Bonds.)
For a long term holder, the prospect of paying taxes thirty years in the future, with inflated dollars and inflated tax brackets, seems like a double-dip benefit.
That would indeed be the best time to do something like this. During my expected "low income" years (still several years from now, mainly in my 60s between retiring and collecting SS at 70 and probably also into my 70s prior to RMDs kicking in for me at 75) I plan to move as much of my 401k money into a Roth IRA as I can manage without triggering IRMAA or other negative tax consequences so that when I do start taking RMDs, they won't trigger IRMAA or other negative tax consequences!
Partial redemption also gives the benefit of a 1099 tax form for the year rather than having to figure out the amount of interest to be taxed on your own.