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Savings bonds are largely a financial tool of the past. 20 or 30 years ago well intending grandparents would purchase a bond for their new grandkids. Over the next few decades those bonds would grow and eventually mature. At that point they are cashed out and the grandchild would be able to use them for college expenses, a down payment on a house, or whatever else they thought necessary. Today, however, buying those bonds isn’t nearly as popular in part due to the low interest rates.

Regardless of who is, or isn’t buying bonds today, there are many of them that are maturing. So what happens when your savings bond matures? What are the tax implications of cashing in a savings bond? Your accountant in Billings, Montana can help you know the options.

What Happens When a Bond Matures?

Savings bonds have changed some over the years. There are two basic types: those that are purchased at face value and pay interest once or twice per year, and those that are purchased at a discounted value but grow to full value when they mature. Depending on what type you have determines what happens when they mature.

If you have an older bond you most likely are dealing with one that was purchased at a discount and matures for full value. If you have this type of bond, and it has reached its maturity date, then it doesn’t do any good to keep it around any longer. You should cash it in since it is no longer appreciating or earning interest.

What are the Tax Implications of Selling a Savings Bond?

Since the savings bond was purchased for less than it is worth, there will be some gains. But are these taxed? The bottom line is: maybe.

Interest earned on savings bonds is subject to federal income tax, but it’s not subject to state tax. To complicate matters more, you may not have to pay federal income tax on your bond’s interest if you use the money for higher education purposes.

For bonds that accumulate interest year after year, you have to report that interest when you earn it. Most often you will get a 1099-INT from the brokerage through which you made the purchase. For bonds that mature at a higher value than for which they were sold, you report that interest when you take possession of the money.

Confused on How Savings Bonds Work?

Savings bonds have a few moving parts, they currently pay low interest (around .1%) and don’t offer substantial tax benefits. So why do people purchase them? Really the only reason is that they are putting their faith in the US government rather than a financial institution. But that low interest rate has made them significantly less popular than other financial vehicles like CD’s, investments, money market accounts, and corporate bonds.

If you have savings bonds, and you are confused on what to do, your accountant in Billings, Montana can help you figure everything out. Taxes are likely due on them, so make an appointment today!

Practical Taxes is a full service accounting firm in Billings, Montana. We can help with all of your tax preparation needs as well as online payroll services, business consultation, and much more!

Did you know that it’s becoming ever-more popular to outsource payroll to an accountant service? It’s true, payroll is the number one thing businesses will outsource. There are many reasons including, cost, productivity, accountability, legality, and service.

Cost
Small businesses can absolutely save money by outsourcing payroll. Add up those hours spent on payroll and then calculate the costs to the company. Most times—especially for small businesses where each minute of the day could be filled with some type of progressive work—the outsourcing of payroll is considerably less than the cost of doing it internally. Oftentimes this is because accountants oftentimes use more sophisticated software than a typical small business, and accountants have the job streamlined.

Productivity
If you own a small business you will grow to appreciate the freedom that freeing up internal sources from the job of payroll will provide. You get to focus on the job you want to do, which is especially important for new businesses, not yet established—in today’s world the percentage of new businesses that fail is staggering.

Accountability
Did you know that a high percentage of small business pay a penalty to the IRS every year for improperly filed payroll taxes? Hiring an accountant at Practical Taxes makes sense, when you consider that they understand the ins and the outs of current tax policy. This also goes hand in hand with legal compliance. Because a payroll service like Practical Taxes is going to understand the continually shifting laws and obligations involving payroll.

Service
In today’s modern world you can find just about anything on the internet—including a payroll service! Regardless of how reputable companies are, isn’t it best to have an accounting service such as Practical Taxes with whom you can work, face to face in some cases, and trust all that important paperwork and sensitive documents to a responsible face. If you have any questions as to how Practical Taxes can help your business grow and succeed, be it with the outsourcing of payroll or the general everyday management of your business, call today.