US Savings Bond Tax Trap
Many Americans have old US savings bonds sitting in safe deposit boxes and filing cabinets that were either purchased, or given to them decades ago. If you're one of those people, you need to take a look at them before April 15th to see if your bonds have matured. If they have matured, they're no longer earning you interest, but more importantly, they could be creating a tax headache for you.
Believe it or not, keeping a US Savings Bond past maturity is a violation of IRS statutes. While it's unlikely to land you in a jail cell at Leavenworth, if you hold the bonds after the date of final maturity, it does open the door to a possible tax penalty and/or fine. IRS Publication 550 states that once a savings bond passes its final maturity date, the interest accumulated over the life of the bond must be reported on that year�s federal tax return.
You're required to pay tax on a U.S. Savings Bond in one of two ways. You can choose to defer the tax until the bond matures, which is what most taxpayers do. If you do it this way, you redeem the bond and then report the interest on your taxes through a 1099-INT form. The other way you can pay taxes on a Savings Bond is to pay annually by reporting the increase in the value of the bond as interest in each tax year.
The problem for folks who forget and hold the bonds too long, is they have to pay a lump sum and sometimes penalties. The penalties come about because the IRS considers this oversight as if you had under reported unearned income. If you discover that you still own a Savings Bond past maturity, but it has been less than three years since your bond stopped earning interest, you may be able to file an amended federal tax return without being penalized. If it has been more than three years, you need to cash it in as soon as possible. The longer you wait to cash in the bond, the longer it's not earning you any interest, and the larger the penalty the IRS might hand you.
So, dig out those old savings bonds and take a look at them. If you own a Series E U.S. Savings Bond, you can check on its maturity date at: www.savingsbonds.gov/indiv/tools/tools_treasuryhunt.htm The site provides records of most registered U.S. Treasury notes and bonds issued since 1974.
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