Remember that sweet 9.62% interest on I bonds you snagged in 2022? It's time to face the music – tax season. Millions cashed in on these government savings bonds, but here's the catch: the interest is taxable as regular income. So, before you splurge on your newfound wealth, ensure you're ready for the taxman's visit.
Here's the lowdown:
No 1099? No problem (sort of). Unlike most investments, I bonds don't automatically send you a 1099. You need to download it yourself from the TreasuryDirect website. Don't miss this crucial step; forgetting could land you in hot water with the IRS.
Navigating the digital maze. Downloading the 1099 involves a bit of a scavenger hunt. Be prepared to log in, follow specific instructions, and print or save the form manually. There's even an instructional video if you get stuck.
Tax implications. The good news? I bond interest is exempt from state and local taxes. The bad news? It's taxed federally at your regular income tax rate. So, that $1,000 interest could translate to a $220 tax bill if you're in the 22% bracket.
Penalty pain points. Skipping the taxes? Think again. Omitting income can lead to penalties and interest charges, potentially negating your I bond gains. The severity depends on how quickly you rectify the issue and your eligibility for penalty waivers.
Don't panic – we've got you covered:
Download your 1099: Remember the email titled "TreasuryDirect 1099 Statement Information" from January? Dig it out or search for it. If not, log in to TreasuryDirect, navigate to "Manage Direct," then "Manage my taxes," and finally "View your 1099 for tax year 2023." Print or save it as a PDF.
Calculating your tax: Interest on I bonds is taxed at your ordinary income tax rate. Use online tax software or consult your tax preparer for accurate calculations.
Tax deferral option: While not ideal for everyone, you can elect to pay taxes annually on interest instead of waiting until cashing out. This, however, can complicate your tax filing.
Future-proof your I bond cashouts: Set up voluntary tax withholding on future redemptions through the TreasuryDirect website. This automatically deducts a portion for taxes, simplifying your tax filing.
Double-check your IRS account: Unsure about your 1099? Access your IRS account online and review your wage and income statement. It should list all 1099s issued to you, including I bonds.
Remember: Tax responsibility ultimately lies with you. Don't let the I bond bonanza turn into a tax headache. By following these steps and staying organized, you can ensure a smooth tax season and enjoy your hard-earned returns.
