I covered buying I Bonds in a trust, buying I Bonds in your kid’s name, and buying I Bonds as a gift in other posts. This time we look at buying I Bonds in the name of a business. For background on I Bonds in general, please read How To Buy I Bonds.
A Business Is Separate From the Owner
Many people have a business when they sell products or provide services. Some people have a separate LLC for each of their rental properties. A key principle in business is that a business is separate from its owner. When you buy flowers from Carol’s Flowers you’re buying from Carol’s business, not from Carol herself.
A business may be organized as a sole proprietorship, a partnership, an LLC, an S-Corp, or a C-Corp. An LLC, S-Corp, or C-Corp usually requires registering with the state. A sole proprietorship or a partnership may have a fictitious name filing (“DBA”) with the state or the county. Some counties and cities also require business licenses. Having any of these shows it’s a business. The business exists separately from the owner as a person.
An S-Corp or a C-Corp has a separate tax ID (“EIN”). An LLC or a sole proprietorship can have an EIN or it can use the owner’s Social Security Number as its tax ID. Which tax ID a business uses and how the business is taxed don’t change the fact the business is still a separate entity from the owner as a person.
Side Hustles and Gig Work
Many people engage in side hustles and gig work such as driving for Uber, delivering for DoorDash or Amazon, etc. They don’t register an LLC. They just report the income on Schedule C when they file their personal tax returns.
That’s still a business. It’s a sole proprietorship. To make it more obvious, it’s probably better to file for a fictitious business name (“DBA”) and/or get a business license from the county or the city. The county or the city may actually require a business license but many people don’t know. Google the name of your city and county and “business license” to see what the requirements are.
Where I live, it costs $22 to register a DBA and it’s good for three years. Where I used to live, the city requires a business license that costs $200/year but the fee is waived if the business’s annual revenue is less than $25,000.
A Business’s Investments Belong to the Business
A business as a separate entity can (and should) have its own bank account to keep the business’s financial affairs separate from the owner’s personal financial affairs. In addition to receiving revenue, paying business expenses, and paying the owner, the business can invest its excess cash in stocks, bonds, mutual funds, ETFs, real estate, and what have you. And that includes I Bonds as well.
All the business’s assets, including cash in the bank, vehicle, equipment, inventory, and all its investments still belong to the business. If the business changes ownership, the new owners get everything the business owns. If the business gets a judgment against it, all the assets the business owns are subject to the judgment. This creates a risk in keeping financial assets in the business’s name.
Entity Accounts at TreasuryDirect
If you’re OK with the risk of buying I Bonds in the name of your business, you can open an entity account for your business at TreasuryDirect.
A business can buy up to $10,000 per calendar year. If you own multiple business entities, each separate business entity can buy up to $10,000 per calendar year in its own separate account. Because you’re using the business’s cash to buy I Bonds, it doesn’t matter how much revenue the business has in a year as long as the business has that much cash in its bank account.
Choose the correct business type that corresponds to your business and go from there.
You’ll be the Account Manager of the business account. You can give the same email address that you use on a personal account with TreasuryDirect. The business account at TreasuryDirect should link to the business’s bank account, not your personal bank account. Write down the account number you receive by email after you open the account. You’ll need it to log in.
Repeat the process if you have multiple business entities.
Buying and Cashing Out
You use the excess cash in the business to buy I Bonds. If you normally pay out the cash as an owner’s draw, that money has to stay in the business now, which reduces your owner’s draw. If your business is a pass-through entity (sole proprietorship, LLC, or S-Corp), you’re still taxed on the money even if you don’t actually pay out the draw.
When you cash out I Bonds in the business account, the money goes to the business’s bank account. You can do whatever you normally do with any cash in the business’s bank account, including paying out to the owner.
The accumulated interest paid with the cashout is taxable to the business. TreasuryDirect will generate a 1099-INT form with the business’s tax ID. They don’t mail a paper 1099 form. You’ll have to remember to log in next year and download or print the 1099 form.
If the business files a separate tax return (C-Corp, S-Corp, partnership, or LLC taxed as an S-Corp or a partnership), the business has to include the interest income on its tax return. If the business issues a K-1 form to the owner, the interest income also goes on the K-1 form as non-business income, which the owner uses to include on their personal tax return. For an S-Corp or an LLC taxed as an S-Corp, that’s on Schedule K-1 (Form 1120S) Line 4 Interest Income. For a partnership or an LLC taxed as a partnership, that’s on Schedule K-1 (Form 1065) Line 5 Interest Income.
If the business is a sole proprietorship or a single-member LLC taxed as a sole proprietorship, the business doesn’t file a separate tax return. The owner files a Schedule C on the owner’s personal tax return. The interest from I Bonds doesn’t go on Schedule C when investing in I Bonds isn’t a business activity. It goes on Schedule B as a separate entry in the same way as the owner receiving a 1099 form from another bank. The IRS knows that interest income reported to an LLC’s EIN is tied to the owner’s SSN when the owner’s Schedule C has the LLC’s EIN on it.
See Report I Bonds Interest in TurboTax, H&R Block, FreeTaxUSA for how to find and save the 1099 form from TreasuryDirect and how to report the income in tax software.
Keep Them Separate
Similar to a trust’s TreasuryDirect account, when the business is ongoing, you should keep the business’s TreasuryDirect account and your personal TreasuryDirect account separate.
Transferring I Bonds from one TreasuryDirect account to another TreasuryDirect account counts against the annual purchase limit of the receiving account. You should avoid transferring when you’re buying the maximum in both accounts in the same year. You’ll get a stern warning if you buy the maximum in both accounts and transfer from one account to the other in the same year.
When you’re done buying all the I Bonds you want and you’d like to consolidate your holdings into one TreasuryDirect account, transfer in a year when you’re not buying I Bonds in the receiving account. Go to ManageDirect and then “Transfer securities.” It may ask you to use FS Form 5511. This form requires a signature guarantee. See Where to Get a Signature Guarantee for I Bonds at TreasuryDirect.
When the Business Ends
Before you wind down the business, you should dispose of the business’s assets and liabilities. Your authority to transact on behalf of the business ends when the business ceases to exist. So either sell or transfer the business’s assets to the owner(s) before you shut down the business.
If you’d like to keep the I Bonds as I Bonds as opposed to cashing out, you can transfer the bonds from the business account to the owner’s personal account. Go to ManageDirect and then “Transfer securities.” It may ask you to use FS Form 5511 and get a signature guarantee.
After You Die
A business account in TreasuryDirect can’t designate a second owner or a beneficiary. If you die, whoever takes over the ownership of the business also takes over the I Bonds the business owns. The new owner needs to change the business account’s Account Manager with FS Form 5446. This form also requires a signature guarantee.
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