Overpay estimated taxes to facilitate Ibond purchase?

December 28, 2022 1:22 PM

The current limit for purchasing IBonds is $10,000 per year. However, if the IRS owes you a tax refund, then you can use up to $5,000 of that refund to purchase IBonds beyond the $10,000. Is it ok to intentionally overpay estimated taxes in the last quarter to ensure a $5,000 refund thereby making possible the additional purchase? I'm thinking of legal/IRS issues and not what is financially optimal.
posted by Kevin S to Work & Money (2 answers total)

Best answer: I have done exactly this. The only caveats are that the payment in I bonds may not happen if there's any issue with your taxes - some people report getting a bank deposit back instead of I bonds if the IRS finds anything wrong with your taxes. Also, you will get paper I Bonds by mail. You will either need to hold onto the bonds, or send them back to the US Treasury to convert into electronic bonds on TreasuryDirect.

To take it a bit further, you can pay the amount on credit card. Pay1040 currently charges 1.87% to pay your taxes via your credit card. I get 2% cash back on my credit card. I pay the entirety of my taxes this way, and make 0.13% of my taxes back in net credit card rewards.
posted by saeculorum at 1:42 PM on December 28, 2022 [5 favorites]

Best answer: From discussion at the Bogleheads forum, there seems to be no legal problem with intentionally creating a refund situation in order to purchase additional IBonds. But it seems common to receive a cash refund instead, for reasons the IRS may not be able to explain. Example Bogleheads thread on this topic.
posted by Snerd at 3:35 PM on December 28, 2022 [2 favorites]