The ever-knowledgeable aj485 gave me a sharp wake-up call about 2 months ago.
Yikes!
I have started to pay taxes on the interest in 2021. I will have to pay taxes on the interest from now on. I will have to keep complete records so the IRS doesn’t charge taxes on interest which has already been paid from 2021 - 2031.
I was trying to find out more about this yesterday, and could find nothing other than if you decide to declare the phantom interest every year for one bond, then you had to do it for all of the bonds that you hold and for all the accrued interest in arrears. I don’t see anything about if you chose to redeem a bond in any given year stating that you then needed to be taxed on the accrued interest from all your other bonds as well.
I am sure AJ provided links at the time, but as usual the TMF search function is worthless. Can one not simply start liquidating a portion of their bonds annually?
“I was trying to find out more about this yesterday, and could find nothing other than if you decide to declare the phantom interest every year for one bond, then you had to do it for all of the bonds that you hold and for all the accrued interest in arrears. I don’t see anything about if you chose to redeem a bond in any given year stating that you then needed to be taxed on the accrued interest from all your other bonds as well.”
( you know all this, of course, but I’m just thinking out loud )
“Owners can wait to pay the taxes when they cash in the bond, when the bond matures, or when they relinquish the bond to another owner. Alternatively, they may pay the taxes yearly as interest accrues. Most owners choose to defer the taxes until they redeem the bond.”
“Owners can wait to pay the taxes when they cash in the bond, when the bond matures, or when they relinquish the bond to another owner. Alternatively, they may pay the taxes yearly as interest accrues. Most owners choose to defer the taxes until they redeem the bond.”
The problem with selling them is that only $10k per SSN can be invested
in I-bonds, and the I-bonds yield many multiples above the pathetic yield on MMF/s, CD’s, or bank
accounts. So the rungs on the I-bond ladder would be getting taken out. This isn’t a problem
if you’re not building a position in I-bonds, as you just buy a new one to take the place of the
one sold. But if say a 10 rung ( years ) ladder is wanted, and you’re still accumulating rungs,
then I don’t see any loophole, either pay taxes yearly and keep meticulous records, or have a much bigger tax bite to deal with whenever maturity or liquidation occur.
The problem with selling them is that only $10k per SSN can be invested in I-bonds, and the I-bonds yield many multiples above the pathetic yield on MMF/s, CD’s, or bank accounts. So the rungs on the I-bond ladder would be getting taken out. This isn’t a problem if you’re not building a position in I-bonds, as you just buy a new one to take the place of the one sold. But if say a 10 rung ( years ) ladder is wanted, and you’re still accumulating rungs, then I don’t see any loophole, either pay taxes yearly and keep meticulous records, or have a much bigger tax bite to deal with whenever maturity or liquidation occur.
Thanks Joe. That $10K limit per SS# only happened in 2012. Some of us have positions from before then, which is the basis for the concern. As concerns go, it’s a good one to have. Just looked at my bonds from 2000, and they are earning 10.85%. I guess I might consider running the numbers to see if it’s worth cashing in a few years early if the rate goes back down, but for now that’s a good safe investment to hold on to. As long as cashing one in doesn’t trigger taxes on all the others, I’m good with that.