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The definition of a U.S. Savings Bond is an investment in the federal government that helps to increase your money. By purchasing a savings bond, you are essentially lending money to the government which you will get back in the future, when the bond matures, with interest. Because these financial products are backed by the federal government, they are considered to be extremely low-risk. And, in certain situations, there can be tax advantages.

Savings Bond Definition

A savings bond is basically a loan made to the U.S. government, in exchange for which the government agrees to repay the loan at a later time, along with interest that is earned over the life of the bond.

There are two types of savings bonds available through the U.S. Treasury, the Series EE savings bond and the Series I savings bond. The Series EE bond offers a fixed-interest rate, while the Series I bond offers a combination of a fixed rate and a variable inflation rate. Both bonds are low-risk and provide interest for up to 30 years, though you may withdraw funds without penalty as long as the bond has been held for at least five years.

Investors may also invest in state or local municipal bonds that fund public projects and may be available in different term lengths.

How Do Savings Bonds Work?

Savings bonds are issued by the U.S. Treasury. You can buy one for yourself, or for someone else, even if that person is under age 18. (That’s why, when you clean out your closets, you may find a U.S. Savings Bond that was a birthday present from Grandma a long time ago.)

Basically, these savings bonds function the same way that other types of bonds work. You buy a savings bond for face value, or the principal, and the bond will then pay interest over a specific period of time.

•   You can buy savings bonds electronically from the U.S. Treasury’s website, TreasuryDirect.gov . For the most part, it’s not possible to buy paper bonds anymore but should you run across one, you can still redeem them. (See below). Unlike many other types of bonds, like some high-yield bonds, you can’t sell savings bonds or hold them in brokerage accounts.

How Much Are Your Savings Bonds Worth?

If you have a savings bond that has been tucked away for a while and you are wondering what it’s worth, here are your options:

•   If it’s a paper bond, log onto the Treasury Department’s website and use the calculator there to find out the value.

•   If it’s an electronic bond, you will need to create (if you don’t already have one) and log onto your TreasuryDirect account.

Savings Bonds Interest Payments

For U.S. Savings Bonds, interest is earned monthly. The interest is compounded semiannually. This means that every six months, the government will apply the bond’s interest rate to grow the principal. That new, larger principal then earns interest for the next six months, when the interest is again added to the principal, and so on.

3 Different Types of Savings Bonds

There are two types of U.S. Savings Bonds available for purchase — Series EE and Series I savings bonds. Here are the differences between the two.

1. Series EE Bonds

Introduced in 1980, Series EE Bonds earn interest plus a guaranteed return of double their value when held for 20 years. These bonds continue to pay interest for 30 years.

Series EE Bonds issued after May 2005 earn a fixed rate. The current Series EE interest rate for bonds issued as of November 1, 2025 is 2.50%.

2. Series I Bonds

Series I Bonds pay a combination of two rates. The first is the original fixed interest rate. The second is an inflation-adjusted interest rate, which is calculated twice a year using the consumer price index for urban consumers (CPI-U). This adjusted rate is designed to protect bond buyers from inflation eating into the value of the investment.

When you redeem a Series I Bond, you get back the face value plus the accumulated interest. You know the fixed rate when you buy the bond. But the inflation-adjusted rate will vary depending on the CPI-U during times of adjustment.

The current composite rate for Series I Savings Bonds issued as of November 1, 2025 is 4.03%.

3. Municipal Bonds

Municipal bonds are a somewhat different savings vehicle than Series I and Series EE Bonds. Municipal Bonds are issued by a state, municipality, or country to fund capital expenditures. By offering these bonds, projects like highway or school construction can be funded.

These bonds (sometimes called “munis”) are exempt from federal taxes and the majority of local taxes. The market price of bonds will vary with the market, and they typically require a larger investment of, say, $5,000. Municipal bonds are available in different terms, ranging from relatively short (about two to five years) to longer (the typical 30-year length).

How To Buy Bonds

You can buy Series EE and I Savings Bonds directly through the United States Treasury Department online account system called TreasuryDirect, as noted above. This is a little bit different than the way you might buy other types of bonds. You can open an account at TreasuryDirect just as you would a checking or savings account at your local bank.

You can buy either an EE or I Savings Bond in any amount ranging from a $25 minimum in penny increments per year. So, if the spirit moves you, go ahead and buy a bond for $49.99. The flexible increments allow investors to dollar cost average and make other types of calculated purchases.

That said, there are annual maximums on how much you may purchase in savings bonds. The electronic bond maximum is $10,000 for each type. You can buy up to $5,000 in paper Series I Bonds using a tax refund you are eligible for. Paper EE Series bonds are no longer issued.

If you are due a refund and you want to buy I Bonds, be sure to file IRS form 8888 when you file your federal tax return. On that form you’ll specify how much of your refund you want to use to buy paper Series I bonds, keeping in mind the minimum purchase amount for a paper bond is $50. The IRS will then process your return and send you the bond that you indicate you want to buy.

The Pros & Cons of Investing in Savings Bonds

Here’s a look at the possible benefits and downsides of investing in savings bonds. This will help you decide if buying these bonds is the right path for you, or if you might prefer to otherwise invest your money or stash it in a high-yield bank account.

The Pros of Investing in Savings Bonds

Here are some of the upsides of investing in savings bonds:

•   Low risk. U.S. Savings Bonds are one of the lower risk investments you could make. You are guaranteed to get back the entire amount you invested, known as principal. You will also receive interest if you keep the bonds until maturity.

•   Tax advantages. Savings bond holders don’t pay state or local taxes on interest at any time. You don’t have to pay federal income tax on the interest until you cash in the bond.

•   Education exception. Eligible taxpayers may qualify for a tax break when they use U.S. Savings Bonds to pay for qualified education expenses.

•   No fees. Unlike just about every other type of security, you won’t pay a fee, markup or commission when you buy savings bonds. They’re sold at face value, directly from the Treasury, so what you pay for is what you get. If you buy a $50 bond, for example, you’ll pay $50.

•   Great gift. Unlike most securities, people under age 18 may hold U.S. Savings bonds in their own names. That’s what makes them a popular birthday and graduation gift.

•   Patriotic gesture. Buying a U.S. Savings Bond helps support the U.S. government. That’s something that was important and appealed to investors when these savings bonds were first introduced in 1935.

The Cons of Investing in Savings Bonds

Next, consider these potential downsides of investing in savings bonds:

•   Low return. The biggest disadvantage of savings bonds is their low rate of return, as noted above. A low risk investment like this often pays low returns. You may find you can invest your money elsewhere for a higher return with only slightly higher risk.

•   Purchase limit. For U.S. Savings Bonds, there’s a purchase limit per year of $10,000 in bonds for each series (meaning you can invest a total of $20,000 per year), plus a $5,000 limit for paper I bonds via tax refunds. For some individuals, this might not align with their investing goals.

•   Tax liability. It’s likely you’ll have to pay federal income tax when you cash in your savings bond, unless you’ve used the proceeds for higher education payments.

•   Penalty for early withdrawal. If you cash in your savings bond before five years have elapsed, you will have to pay the previous three months of interest as a fee. You are typically not allowed to cash in a bond before the one-year mark.

Here, a summary of the pros and cons of investing in savings bonds:

When Do Savings Bonds Mature?

You may wonder how long it takes for a savings bond to mature. The EE and I savings bonds earn interest for 30 years, until they reach their maturity date.

Recommended: Bonds or CDs: Which Is Smarter for Your Money?

How to Cash in Savings Bonds

You’ll also need to know how and when to redeem a savings bond. These bonds earn interest for 30 years, but you can cash them in penalty-free after five years.

•   If you have a paper bond, you can cash it in at your bank or credit union. Bring the bond and your ID. Or go to the Treasury’s TreasuryDirect site for details on how to cash it in.

•   For electronic bonds, log into your TreasuryDirect account, click on “confirm redemption,” and follow the instructions to deposit the amount to a linked checking or savings account. You will likely get the money within a few business days.

•   If you inherited or found an old U.S. Savings Bond, you may be able to redeem savings bonds through the TreasuryDirect portal or via Treasury Retail Securities Services.

Early Redemption of Bonds

If you cash in a U.S. Savings Bond after one year but before five years, you’ll pay a penalty that is the equivalent of the previous three months of interest. Keep in mind that for EE bonds, if you cash in before holding for 20 years, you lose the opportunity to receive the doubled value of the bond that accrues after 20 years.

The History of US Savings Bonds

America’s savings bond program began under President Franklin Delano Roosevelt in 1935, during the Great Depression, with what were known as “baby bonds.” This started the tradition of citizens participating in government financing.

The Series E Saving Bond contributed billions of dollars to financing the World War II effort, and in the post-war years, they became a popular savings vehicle. The fact that they are guaranteed by the U.S. government generally makes them a safe place to stash cash and earn interest.

The Takeaway

U.S. Savings Bonds can be one of the safest ways to invest for the future and show your patriotism. While the interest rates are typically low, for some investors, knowing that the money is being securely held for a couple of decades can really enhance their peace of mind.

Another way to help increase your peace of mind and financial well-being is finding the right banking partner for your deposit product needs.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What is a $50 savings bond worth?

The value of a $50 savings bond will depend on how long it has been held. You can log onto the TreasuryDirect site and use the calculator there to find out the value. As an example, a $50 Series I bond issued in 2000 would be worth more than $211 today.

How long does it take for a $50 savings bond to mature?

The full maturation date of U.S. savings bonds is 30 years.

What is a savings bond?

A savings bond is a secure way of investing in the U.S. government and earning interest. Basically, when you buy a U.S. Savings Bond, you are loaning the government money, which, upon maturity, they pay back with interest.

Photo credit: iStock/AlexSecret

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

3.60% APY
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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CN-Q425-3236452-12

Series I bonds are a type of savings bond issued by the U.S. Treasury. They are designed to protect against inflation and are generally considered a safe investment because they are backed by the U.S. government.

An I bond is essentially a loan to the government that comes with the promise of returning the investor’s money, typically with interest. What’s distinct about an I bond is that it offers a composite interest rate — a combination of a fixed interest rate and a variable rate that is adjusted every six months for inflation. These bonds also offer some tax advantages.

If you’re considering buying I bonds and you’re wondering how these savings bonds work, here’s what you need to know.

How Do I Bonds Work?

I Bonds are a type of savings bond offered by the U.S. Treasury and backed by the full faith and credit of the U.S. government. These bonds offer two types of interest payments: a fixed rate and an inflation rate, which together provide the bond’s composite rate (or yield).

The fixed-rate portion is determined when the bond is purchased, and it remains the same for the life of the bond. The variable rate gets adjusted twice a year, based on inflation rates. The composite rate on I bonds issued as of November 1, 2025 is 4.03%. If you’re wondering how that rate compares to the interest rate on other types of savings vehicles, the average rate on a 60-month certificate of deposit (CD) in November 2025 was 1.34%, for example, while high-yield savings accounts may offer about 3.00% APY or higher.

Because I Bonds are backed by the U.S. government, they are designed to have a low risk of default. Furthermore, the principal is guaranteed. This is one of the advantages of savings bonds overall. As a result, I Bonds are generally considered low-risk investments.

Individuals who buy I Bonds must hold them for at least 12 months before cashing them in. if they redeem the bonds before the five-year mark, they will lose the last three months of interest. Investors can hold onto I Bonds for up to 30 years, when they reach maturity.

While paper I Bonds used to be available in certain circumstances, all new I Bonds are electronic as of January 1, 2025.

💡 Quick Tip: If your checking account doesn’t offer decent rates, why not apply for an online checking account with SoFi to earn 0.50% APY. That’s 7x the national checking account average.

How Do You Calculate I Bond Interest Rate?

If you are interested in buying bonds like I Bonds, you’ll want to know how to figure out the interest rate. To calculate the I Bonds interest rate, you combine the fixed rate and inflation rate to get the composite rate.

For example, let’s say you bought I bonds when the fixed rate was 1.20% and the inflation rate was 0.95%, to calculate the composite rate you would use this formula:

Plugging in the actual numbers, it would be:

Using these numbers, you’ll earn 3.11% interest on the amount you invested in I Bonds for six months, at which time the rate may change again. So if you invested $1,000 in I Bonds, you would earn $15.55 in interest in six months. The earnings would then be added to your original investment, and for the next six months you would earn interest on that new, higher amount of $1,015.55.

One thing to keep in mind is that if you cash in I Bonds before five years, you will lose the last three months worth of interest. So, if possible, you may want to hang onto them for five years to avoid giving up interest you may have earned.

Are I Bonds Still a Good Investment?

Whether I Bonds make sense for you as an investment depends on a number of factors, your financial goals, risk tolerance, overall investment strategy, and timeline.

Benefits of I Bonds

I Bonds have a number of potential advantages. These include:

•   Lower risk: I Bonds are designed to be a low-risk investment, backed by the U.S. government. If you have a low risk tolerance, I Bonds may be a good choice for you. Also, if you’re looking for a place to park money that you’ll need in five or so years — for a down payment on a house, say — I Bonds can offer a low-risk option.

•   Protection against inflation: I Bonds can help protect your purchasing power in times of high inflation. If inflation rises, the interest rate on I Bonds rises as well. For instance, in May 2022, when inflation was high, I Bonds paid a composite rate of 9.62%. As of November 1, 2024 when inflation was much lower, the composite rate on I Bonds issued was 3.11%.

•   May offer tax advantages: While there are federal taxes on I Bonds, there are no state and local taxes on them.

Drawbacks of I Bonds

There are some downsides to investing in I Bonds, however, such as the following:

•   Time commitment: I Bonds must be held for at least 12 months before they can be redeemed.

•   Possible interest penalty: You’ll lose the last three months’ worth of interest if you sell I Bonds before the five-year mark.

•   Purchase limit: Individuals can purchase no more than $10,000 worth of electronic I Bonds each year through the U.S. Treasury’s Treasury Direct.

•   Lower interest rate: The interest rate may be lower for I Bonds than for some other investments.

•   Hard to predict return over time: To maximize your return on investment when purchasing I Bonds, it’s important to understand how the two interest rate components of the bond can play out over time. As mentioned, the fixed interest rate remains the same for the life of the bond. But the inflation rate of the bond adjusts with changes in inflation rates twice per year. If inflation goes up, so does the bond’s inflation rate. If inflation goes down, the bond’s inflation rate would likewise decrease as well.

I Bonds vs EE Bonds

Investors considering buying savings bonds may want to compare I Bonds and EE Bonds. The two types of bonds have many similarities but also a few key differences.

Similarities

You can buy both EE Bonds and I Bonds from Treasury Direct. Both types of bonds are backed by the full faith and credit of the U.S. government, and they are each designed to be a low-risk investment. They both mature in 30 years.

I Bonds and EE Bonds each have a purchase limit of $10,000 per individual per year.

Differences

One of the main differences between EE Bonds and I Bonds is that EE bonds issued after May 2005 have a fixed interest rate that doesn’t change for at least the first 20 of its 30 years, while I Bonds have a composite rate that combines a fixed rate and an inflation rate, which changes every six months. The interest rate for EE bonds bought as of November 1, 2025 is 2.50%.

One unique feature of EE Bonds is that, over a 20-year period, these bonds are guaranteed to double in value. While I Bonds don’t offer the same guarantee, your principal is guaranteed and the bonds are designed to keep pace with inflation.

Do You Pay Taxes on I Bonds?

Tax-efficient investors may want to consider certain I Bond features. For instance, I Bonds are exempt from local and state taxes. While federal taxes usually apply, they could be deferred until the bond is ultimately sold or matures; whichever happens first.

Additionally, I Bond investors may use the interest payments for qualified higher education expenses and receive a 100% deduction. Some restrictions apply, including:

•   You must cash out your I Bonds the year that you want to claim the exclusion.

•   Your modified adjusted gross income must be less than the cut-off amount the IRS sets for the year.

•   You must use the interest paid to cover qualified higher education expenses for you, your spouse, or your dependent children the same year.

•   You cannot be married, filing separately.

How Do You Buy I Bonds?

You need to meet certain criteria to purchase I Bonds. To be eligible to buy I Bonds you must be:

•   A United States citizen, no matter where you live

•   A United States resident, or

•   A civilian employee of the United States, no matter where you live

If you are eligible to purchase them, buying I Bonds is easy. As previously mentioned, individuals can purchase electronic I Bonds online through Treasury Direct, after setting up a Treasury Direct account. They can be bought in denominations starting at $25. The maximum amount of electronic I Bonds someone can purchase is $10,000 per calendar year.

The Takeaway

If you’re looking for an investment that’s designed to be safe, I Bonds may be worth considering. They are backed by the U.S. government and offer protection from inflation, certain tax advantages, and other benefits that may make them a low-risk choice for your savings goals. However, because I Bonds come with a composite rate of return, it’s hard to predict how much your money will actually earn over time.

If you’re interested in different savings vehicles, there are alternatives to I Bonds, including CDs and high-yield savings accounts. By exploring your options, you can determine the best choice — or choices — for you and your financial goals.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

How Long Do I Bonds Take to Mature?

I Bonds reach maturity in 30 years. You can redeem I Bonds after holding them for 12 months, but if you cash in I Bonds in less than five years, you’ll lose the last three months of interest.

How Often Can You Buy I Bonds?

In one calendar year, an individual can buy up to $10,000 worth of I Bonds. The limit is counted by the Social Security number of the first person listed on the bond, according to Treasury Direct. If you are a co-owner of I Bonds and the second person named on the bonds, those bonds will not count toward your limit.

In addition, if you give I Bonds as a gift, those bonds count toward the limit of the recipient, not you as the giver.

Photo credit: iStock/Bilgehan Tuzcu

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

3.60% APY
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

This content is provided for informational and educational purposes only and should not be construed as financial advice.


¹SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at SoFi.com/banking/fdic/sidpterms. See list of participating banks at SoFi.com/banking/fdic/participatingbanks.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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There is growing interest in using digital assets like crypto as part of retirement planning. This comes as federal agencies have started to lay the groundwork for a more robust regulatory framework for crypto, and more financial institutions are folding cryptocurrencies into their offerings. Certain established cryptocurrencies like Bitcoin have also seen marked growth over years of turbulent highs and lows.

However, if you’re considering the idea of holding crypto in an IRA, there are some important factors you need to know. Crypto is a complex, highly volatile asset, and there are significant risks to holding crypto in an IRA. In addition, it’s still more loosely regulated than many other types of assets. Here’s what individuals need to be aware of when it comes to a crypto IRA.

What Is a Crypto IRA?

A crypto IRA is an individual retirement account in which individuals can hold digital assets such as Bitcoin, Ethereum, or other cryptocurrencies in the account. A crypto IRA is sometimes referred to as a Bitcoin IRA (Bitcoin is the largest cryptocurrency in terms of total market value).

As cryptocurrency has gained more recognition in the last few years, there has been some interest in holding crypto in a retirement account like an IRA. Approximately 10% of Americans with a retirement account say they hold crypto in their account, according to a July 2025 survey by NerdWallet and The Harris Poll. Younger retirement savers are especially likely to hold crypto: 18% of millennials and 14% of Gen Zers say they have crypto as a retirement holding.

There are different types of IRAs, including traditional IRAs and Roth IRAs, and it’s possible to hold crypto in either one. Each has particular withdrawal rules and tax implications (see more about this below).

But whatever type of IRA an individual may be interested in, it’s important to be aware that IRAs are designed to be long-term savings accounts for retirement. Crypto is highly volatile and risky — if it drops in price, there could be serious negative implications for an individual’s retirement fund. Risk and volatility are factors individuals considering a crypto IRA should carefully consider.

Tax Considerations for a Crypto IRA

A crypto IRA has specific tax implications, depending on the type of IRA it is. For example, with a traditional IRA, individuals make contributions to the account with pre-tax dollars, and any earnings — from crypto or other assets — grow tax-deferred in the account. The account holder pays taxes on qualified withdrawals taken in retirement, which is considered by the IRS to be aged 59 ½ or older.

With a Roth IRA, contributions are made with after-tax dollars. Any earnings, including earnings from crypto, grow tax-free in the account. Qualified withdrawals — for individuals who are at least age 59 ½ and have had the Roth IRA for at least five years — are tax-free in retirement.

Crypto IRAs are subject to the same contribution limits as other IRAs. For 2025, the IRA contribution limits are $7,000 for those under age 50 and $8,000 for those age 50 or older. For 2026, the limits are $7,500 for those under age 50 and $8,600 for those age 50 or older.^[1]

Potential Benefits of Holding Crypto in an IRA

While a crypto IRA poses some significant risks, it may also have potential advantages. Possible benefits of holding crypto might include:

•   Access to an emerging asset class: Cryptocurrencies are still a relatively new asset class. Bitcoin, the first established cryptocurrency, launched in 2009, but it didn’t become popular until the Covid-19 pandemic more than a decade later. With a crypto IRA, individuals could get some exposure to this developing asset class.

•   Tax advantages: As mentioned earlier, crypto may grow tax deferred in a traditional IRA, or tax-free in Roth IRA, just like any other asset held in the IRA. That said, individuals with a crypto IRA may want to consult with a tax professional about the specifics.

•   Portfolio flexibility: Holding crypto within an IRA is a way for an individual to include another asset class beyond the more traditional types of assets, such as cash equivalents, stocks, or bonds, within their portfolio.

Risks and Limitations of a Crypto IRA

A crypto IRA has a number of risks, and individuals who are considering the idea of crypto for their retirement account should weigh the drawbacks very carefully. Risks include:

•   Volatility: Cryptocurrencies are highly volatile. For example, there have been several periods when the price of Bitcoin plummeted more than 60% in value, including a 64% drop in 2022. By some estimates, Bitcoin can be up to 5 times more volatile than stocks and bonds.^[2]

•   High-risk asset: Crypto is a speculative asset and it can have a high degree of price volatility as noted above. Individuals who have a low tolerance for risk, or those who are close to retirement age when they will need their savings, may not be well suited to a crypto IRA.

•   Evolving regulations: While federal crypto regulations offering consumer protections have started to take root, they are in the relatively early stages of development. In addition, not all crypto IRA custodians (the financial institution that sets up the IRA) may follow the same level of safe security practices for crypto, which could lead to the assets not being handled properly.

•   Fees: Crypto IRAs generally come with more fees than conventional IRAs. For example, some crypto IRA providers may charge individuals to set up a crypto IRA. In addition to set-up fees, other possible fees include annual maintenance fees, transaction fees, and fees for holding the assets, which are typically known as custody fees. Fees vary by provider, so individuals considering a crypto IRA should compare providers.

How to Get Started With a Crypto IRA

Opening a crypto IRA typically involves several steps.

1.    Choose a crypto IRA custodian. Interested individuals should do some research to find providers that offer a crypto IRA. Some major brokerages now offer these accounts. Other crypto custodians include specialized firms that offer self-directed IRAs (SDIRAs) that are designed to hold cryptocurrencies. Individuals can look for a crypto custodian they feel comfortable with.

2.    Understand fees and account requirements. While evaluating crypto IRA providers, inquire about any fees charged and other account requirements. Ask how crypto assets will be stored and what security measures the company has in place. Compare providers’ policies and fee structures.

3.    Open the account. Once an individual has chosen a provider, they can open a crypto IRA account. They’ll typically need to provide their personal information, such as name and address, Social Security number, and bank account information.

4.    Fund the account. Individuals can fund their crypto IRA with money directly from their bank account. Depending on the type of IRA it is, they can use pre-tax or after-tax dollars. They can then make crypto transactions within the account.

Decide if a Crypto IRA is Right for You

A crypto IRA may be of interest to some individuals seeking exposure to this emerging asset class, but there are also some significant drawbacks to these accounts. Crypto IRAs involve high risk, are extremely volatile, and have fewer protective regulations than many other assets. For those close to retirement age or individuals with a low tolerance for risk, a crypto may not make sense.

While a crypto IRA does have potential advantages, including certain tax benefits, it’s important to carefully weigh the pros and the cons of these accounts. Individuals should consider their risk tolerance, savings timeline, and financial goals before making a decision.

The Takeaway

Crypto IRAs are a type of retirement savings vehicle in which individuals can hold cryptocurrencies in the account. Crypto IRAs may have potential benefits for some individuals, but they also come with significant risks, including high volatility, evolving regulations, and possibly higher fees. It’s wise for individuals to do their research and investigate these accounts thoroughly to make sure a crypto IRA is right for them.

Soon, SoFi members will be able to buy, sell, and hold cryptocurrencies, such as Bitcoin, Ethereum, and more, and manage them all seamlessly alongside their other finances. This, however, is just the first of an expanding list of crypto services SoFi aims to provide, giving members more control and more ways to manage their money.

FAQs

Is it a good idea to put crypto in a retirement account?

Whether it’s a good idea to put crypto in a retirement account depends on an individual’s risk tolerance, retirement savings timeline, and financial goals. Cryptocurrencies are highly volatile and risky assets, and there is a potential for financial losses.

What is a self-directed IRA (SDIRA)?

A self-directed IRA (SDIRA) is an IRA that allows individuals exposure to a broader range of assets than conventional IRAs. These assets may include crypto. With a SDIRA, the account holder has full control and management over the assets in their account.

What are the tax advantages of a crypto IRA?

Tax advantages of a crypto IRA depend on the type of IRA it is. With a traditional IRA, contributions are made with pre-tax dollars, earnings grow in the account tax-deferred, and an individual pays taxes on withdrawals in retirement. With a Roth IRA, contributions are made with after-tax dollars, and earnings in the account grow tax-free. Withdrawals are tax-free in retirement.

Are the fees higher for a crypto IRA than a traditional one?

Crypto IRAs (sometimes referred to as Bitcoin IRAs) generally have higher fees than conventional IRAs. Fees vary by provider, and possible charges may include set-up fees, custody fees, annual maintenance fees, and transaction fees.

Can I add crypto to my existing 401(k) or Roth IRA?

Generally speaking, no. It’s difficult to add crypto to an existing 401(k) since the assets you can choose from depend on what your employer offers. With a Roth IRA, you would need to have an IRA custodian that offers crypto assets, such as a Bitcoin ETF. You could instead set up a self-directed IRA or a crypto IRA and add crypto to that account.

Photo credit: iStock/kate_sept2004

SOCRYP-Q325-110
CN-Q425-3236452-02

The concept of a credit card can be dated back to the early and mid-1900s. There were actually a number of early iterations of what is used today as a credit card. Over the decades, these financial tools have evolved, and variations have multiplied.

Read on to learn about the major milestones in the history of credit cards and how this payment method came to be so popular, as well as what the future holds.

Invention of Credit Cards

There were several precursors to the modern version of the credit card. Credit card history can be traced back to 1914, when Western Union rolled out the idea of “Metal Money.” These metal plates were granted to a handful of customers and allowed them to push back payment until a later date.

The next version of credit cards was introduced in 1946, when New York City banker John Biggins introduced the Charg-it card. These charge cards were usable within a two-block radius of Biggins’ bank. Purchases made by customers were forwarded to his bank account, and merchants were reimbursed at a later date.

Recommended: Charge Cards Advantages and Disadvantages

When Were Credit Cards First Used?

Here’s an overview of which types of credit cards were used when, from the first store card to the first international card.

First “Use Now, Pay Later” Cards

The Diners Club Card was the first card that gained widespread use. The idea for the card arose when businessman Frank McNamara misplaced his wallet and couldn’t pay for dinner at a New York City restaurant. The good news is that his wife was there to cover the tab.

In 1950, McNamara returned to the same restaurant with his business partner, Ralph Schneider, where he used a cardboard card to pay the bill. That card was the Diners Club Card, and the dinner became known as the “First Supper.”

First Bank Cards

In 1958, American Express developed its first credit card that was made of cardboard. The next year, the plastic credit card was developed and released.

Also in 1958, Bank of America mailed its credit card to certain segments of the market in California, where it was based. The bank offered a pre-approved limit of $300 to 60,000 customers in Fresno.

Then, in 1966, Bank of America’s BankAmericard became the U.S.’s first general-use credit card, meaning more places would accept credit card payments with it.

First Interbank Cards

In 1966, a cluster of California banks joined together to form the Interbank Card Association (ITC). The ITC soon launched the nation’s second major bank card. Initially called the Interbank card and later the Master Charge, this card was renamed Mastercard in 1979.

First International Cards

The credit card soon went international, with Diners Club laying claim to being the first international credit card. It’s said to have become the first globally accepted charge card in 1953 when businesses in Cuba, Mexico, and Canada began accepting payments from customers with Diners Club cards.

And in 1970, Bank of America rolled its BankAmericard on a global scale, prompting the formation of the International Bankcard Company (IBANCO).

Regulation and Litigation

Over the decades, credit cards have undergone several rounds of regulation. Here’s a look at some of the major regulatory milestones in the history of credit cards:

1970:

•   The Fair Credit Reporting Act was passed to regulate the collection, access, and use of data concerning consumer credit reports.

•   Also this year, the Unsolicited Credit Card Act was introduced. It prohibited credit card issuers from sending credit cards to customers who didn’t request them.

1974:

•   The Fair Credit Billing Act of 1974 was created to protect consumers from unfair credit billing practices. For instance, it stated that consumers have the right to dispute unauthorized charges, charges made due to errors, and charges when goods weren’t delivered and services not rendered.

•   The Equal Credit Opportunity Act (ECOA) was passed as well. This prevented lenders from discriminating against credit card applicants based on gender, race, age, religion, marital status, national origin, and whether you receive benefits from a public assistance program. It also specified that a lender can’t charge higher fees or a higher than average credit card interest rate for any of those reasons.

1977:

•   The Fair Debt Collection Practices Act was introduced to prevent debt collectors from using deceptive, unfair, or abusive practices when collecting debt that is in default and handled by debt collectors. It limited calls from such agencies to between the hours of 8am to 9pm and prohibited contact at an unusual time or place. In addition, it specified that if you’re represented by a debt attorney, the debt collector must stop calling you and reach out to your attorney instead.

2009:

•   The CARD Act boosted consumer protection by “establishing fair and transparent practices related to the extension of credit.” It prohibits credit card issuers from offering credit without first gauging the consumer’s ability to pay. Additionally, it introduced special rules when it comes to extending credit to consumers under the age of 21. The CARD act also limits the amount of upfront fees an issuers can charge during the first year after an account is opened, as well as the instances that issuers can charge penalty fees.

Technological Evolution of Credit Cards

Here are some of the main technological milestones and changes of credit cards throughout their history:

1969: Magnetic Stripe

Credit card networks and banks started rolling out cards with the magnetic stripe, which became widely adopted. While it’s on the verge of being phased out, consumers still use magnetic stripe for payment today.

2004: Contactless Credit Cards

Contactless credit was used for the first time in 2004. They started to become more popular in 2008, when major credit card networks (including Visa, Mastercard, and American Express) started offering their own versions of contactless cards.

2010: Chip Cards

Pin-and-chip technology made its way to America in 2010. This credit card chip technology offers greater security than magnetic cards, which can be copied. These days, the majority of credit cards in America have EMV (which stands for Europay, Mastercard, and Visa) chips.

2011: Mobile Wallets

In 2011, Google introduced the first mobile wallets, and Apple followed in its footsteps in 2012. In 2014, Apple Pay was released, followed by Android and Samsung Pay in 2015. As mobile wallets are stored on your smartphone, they can grant greater security than physical cards, which can more easily be lost or stolen. Plus, smartphones have security features, such as fingerprint recognition and passcodes, which can provide higher levels of security.

How Do Credit Cards Work?

Credit cards are a tangible card that you can use to make purchases. If you’re wondering how credit cards work, they’re a type of revolving loan, which means that you can tap into your line of credit at any given time. You can borrow funds up to your credit limit, which is set when you apply. Your line of credit gets depleted when you make transactions, and it gets replenished when you pay back what you owe.

Here are some more details on how credit cards work:

•  Credit cards have an interest rate, expressed as annual percentage rate (APR). This represents how much interest you pay during an entire year and includes any fees and other charges along with the interest rate. You’ll only pay interest if you have a remaining balance after your payment due date. When you pay the full balance that you owe on your card, your balance is zero, and you will not owe interest.

•  If you pay more than you owe, or if a merchant issues you a refund for an amount larger than your total balance, then you have a negative balance on your credit card.

•  Credit cards may also come with perks, such as rewards points and cash back. Cardholders may also enjoy additional benefits like travel insurance and discounts at select merchants.

•  Credit cards also have built-in security features, such as pin-and-chip technology, fraud monitoring, and a three-digit CVV number on a credit card.

In terms of how to apply for a credit card, you’ll first want to know your credit score, as this will indicate which cards you may be eligible for. You may consider applying for preapproval to determine your odds of getting approved. When you’ve compared your credit card options and decided which one is right for you, then you can apply in an app, online, over the phone, or through the mail.

Credit Cards and Credit Scores

Credit cards can have a major impact on your credit score. For one, your account activity is reported to the three major credit bureaus: Equifax®, Experian®, and TransUnion®.

Making on-time credit card minimum payments can help build your credit, as payment history makes up 35% of your FICO® consumer credit score. On the flipside, making late payments can drag down your score.

You’ll also want to keep an eye on how much of a balance you rack up relative to your total amount of credit available (aka your credit limit). Your credit utilization ratio, which measures how much of your available credit has been used, accounts for 30% of your score. It’s generally recommended to keep your credit utilization below 30% (10% is even better) to avoid adverse effects to your credit score.

Other factors related to how your credit card can impact your score include:

•  The length of your credit history, which makes up 15% of your score

•  Your mix of different credit types, which accounts for 10% of your credit score (having more types is better)

•  Having a longer credit history, meaning accounts open for longer, can help build your score

•  Not applying for too much new credit is also a way to build your credit score. Too many hard credit inquiries related to new lines of credit can make it seem as if you are more of a risk.

Types of Credit Cards

Today, there are a number of different types of credit cards to choose from. Take a look at the different types of credit cards available.

Rewards Cards

Rewards cards feature a way to earn rewards through travel miles, cash back, or points. You usually collect rewards when you make purchases. For example, you may earn one point for every dollar spent and/or a multiple of that for certain types of purchases or ones made at specific retailers.

You usually can redeem the rewards you earn in different ways, such as on travel accommodations, airline tickets, gift cards, merchandise, or as credit toward your balance statement.

Low-Interest Cards

As the name suggests, low-interest cards feature a low APR. Having a card with a low APR can certainly benefit you if you carry a credit card balance or plan to use your card to make a large purchase, as you may be able to save money on interest.

When looking for low-interest credit cards, you usually need to have a strong credit score to qualify.

Credit-Building Cards

If you have a short credit history or less-than-stellar credit score, a credit-building card can help positively impact your credit. As payments made on a secured credit card are reported to the three major credit bureaus, using your card can help build your credit as long as you stay on top of your payments.

While these cards are more accessible than many other credit cards out there, they also tend to have higher interest rates and fees. They may also offer a lower credit card limit.

Secured Credit Cards

If you have a low credit score, you might also look into a secured credit card, in which you put down cash, which becomes your credit card limit. Use these cards responsibly, and you may be able to graduate to a standard credit card.

Recommended: When Are Credit Card Payments Due?

The Future of Credit Cards

As demonstrated in the past few decades, credit card technology is constantly evolving to meet the needs and demands of consumers. The next time you reach your credit card expiration date, you could see an updated product in the mail.

It’s expected that contactless payments, which increased in popularity during the pandemic, will continue to proliferate. In the future, it may even become possible to make payments via voice command tools. Wearable payments, such as paying for goods and services with payment technology that’s embedded in a wristband, ring, or keychain, is another avenue being explored.

Additionally, the security protocols used in credit cards will continue to evolve. It’s anticipated that magnetic stripe cards will soon fall by the wayside and be replaced by biometric cards, which use fingerprints and chip technology to enhance security.

The Takeaway

As you can see from learning the history of credit cards, a lot has changed since the payment method was first introduced. Credit cards remain as popular a payment method as ever, and it’s expected they’ll continue to evolve as technology and consumer needs shift. One thing that probably won’t change is the importance of understanding how credit cards work, what your card agreement’s fine print says, and how to use these cards responsibly.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

Who invented credit cards?

There were several early iterations of credit cards, so it’s difficult to pin down exactly who invented credit cards. The credit may go to businessman Frank McNamara and his business partner Ralph Schneider, who invented the Diners Club Card.

How were credit cards first used?

While the concept of paying by credit can be traced back to ancient civilizations, the first modern day example of paying with a credit card was the Diners Club card, which could be used at restaurants. However, this card had one major difference between modern credit cards: You had to pay off the balance in full each month.

What was the first type of credit card?

The first type of credit card was most likely the Diners Club card, introduced in 1950. It was the first credit card that could be used at multiple establishments.

Photo credit: iStock/DoubleAnti

SoFi Credit Cards are issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOCC-Q425-008

Millions of employees work from home at least part time. They’ve carved out dedicated office space and plopped laptops on kitchen counters and in closets. They almost never can declare the home office tax deduction.

Millions of self-employed people have also created workspaces at home. If they use that part of their home exclusively and regularly for conducting business, and the home is the principal place of business, they may be able to deduct office-related business expenses.

Why the difference? The Tax Cuts and Jobs Act nearly doubled the standard deduction and eliminated many itemized deductions, including unreimbursed employee expenses, from 2018 to 2025, and the standard deduction will increase again for the 2026 tax year.

Read on to learn whether or not you may qualify for the home office tax deduction.

What Is a Home Office Tax Deduction?

The home office tax deduction is available to self-employed people — independent contractors, sole proprietors, members of a business partnership, freelancers, and gig workers who require an office — who use part of their home, owned or rented, as a place of work regularly and exclusively.

“Home” can be a house, condo, apartment, mobile home, boat, or similar property, and includes structures on the property like an unattached garage, studio, barn, or greenhouse.

Eligible taxpayers can take a simplified deduction of up to $1,500 or go the detailed route and deduct office furniture, homeowners or renters insurance, internet, utilities needed for the business, repairs, and maintenance that affect the office, home depreciation, rent, mortgage interest, and many other things from taxable income.

After all, reducing taxable income is particularly important for the highly taxed self-employed (viewed by the IRS as both employee and employer.)

An employee who also has a side gig — like driving for Uber or dog walking — can deduct certain expenses from their self-employment income if they run the business out of their home.

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Am I Eligible for a Home Office Deduction?

People who receive a W-2 form from their employer almost never qualify.

In general, a self-employed person who receives one or more IRS 1099-NEC tax forms may take the home office tax deduction.

Both of these must apply:

•   You use the business part of your home exclusively and regularly for business purposes.

•   The business part of your home is your main place of business; the place where you deal with patients or customers in the normal course of your business; or a structure not attached to the home that you use in connection with your business.

Regular and Exclusive Use

You must use a portion of the home for business needs on a regular basis. The real trick is to meet the IRS standard for the exclusive use of a home office. An at-home worker may spend nine hours a day, five days a week in a home office, yet is not supposed to take the home office deduction if the space is shared with a spouse or doubles as a gym or a child’s homework spot.

There are two exceptions to the IRS exclusive-use rules for home businesses.

•   Daycare providers. Individuals offering daycare from home likely qualify for the home office tax deduction. Part of the home is used as a daycare facility for children, people with physical or mental disabilities, or people who are 65 and older. (If you run a daycare, your business-use percentage must be reduced because the space is available for personal use part of the time.)

•   Storage of business products. If a home-based businessperson uses a portion of the home to store inventory or product samples, it’s OK to use that area for personal use as well. The home must be the only fixed location of the business or trade.

Principal Place of Business

Part of your home may qualify as your principal place of business “if you use it for the administrative or management activities of your trade or business and have no other fixed location where you conduct substantial administrative or management activities for that trade or business,” the IRS says.

Can You Qualify for a Home Office Deduction as an Employee?

Employees may only take the deduction if they maintain a home office for the “convenience of their employer,” meaning the home office is a condition of employment, necessary for the employer’s business to function, or needed to allow the employee to perform their duties.

Because your home must be your principal place of business in order to take the home office deduction, most employees who work part-time at home won’t qualify.

Can I Run More Than One Business in the Same Space?

If you have more than one Schedule C business, you can claim the same home office space, but you’ll have to split the expenses between the businesses. You cannot deduct the home office expenses multiple times.

How to Calculate the Home Office Tax Deduction

The deduction is most commonly based on square footage or the percentage of a home used as the home office.

The Simplified Method

If your office is 300 square feet or under, Uncle Sam allows you to deduct $5 per square foot, up to 300 square feet, for a maximum $1,500 tax deduction.

The Real Expense Method

The regular method looks at the percentage of the home used for business purposes. If your home office is 480 square feet and the home has 2,400 square feet, the percentage used for the home office tax deduction is 20%.

You may deduct 20% of indirect business expenses like utilities, cellphone, cable, homeowners or renters insurance, property tax, HOA fees, and cleaning service.

Direct expenses for the home office, such as painting, furniture, office supplies, and repairs, are 100% deductible.

💡 Quick Tip: A major home purchase may mean a jumbo loan, but it doesn’t have to mean a jumbo down payment. Apply for a jumbo mortgage with SoFi, and you could put as little as 10% down.

Things to Look Out for Before Applying for the Home Office Tax Deduction

If you’re an employee with side gigs or just self-employed, it might be a good idea to consult a tax pro when filing.

To avoid raising red flags, you may want to make sure your business expenses are reasonable, accurate, and well-documented. The IRS uses both automated and manual methods of examining self-employed workers’ tax returns. And in 2020, the agency created a Fraud Enforcement Office, part of its Small Business/Self-Employed Division. Among the filers in its sights are self-employed people.

The IRS conducts audits by mail or in-person to review records. The interview may be at an IRS office or at the tax filer’s home.

A final note: Taking all the deductions you’re entitled to and being informed about the different types of taxes is smart.

If you’re self-employed, you generally must pay a Social Security and Medicare tax of 15.3% of net earnings. Wage-earners pay 7.65% of gross income into Social Security and Medicare via payroll-tax withholding, matched by the employer.

So self-employed people often feel the burn at tax time. Especially given the cost of living these days, it’s smart to look for deductions and write off those home business expenses if you’re able to.

To shelter income and invest for retirement, you might want to set up a SEP IRA if you’re a self-employed professional with no employees.

Recommended: First-Time Homebuyers Guide

The Takeaway

If you’re an employee working remotely, the home office tax deduction is not for you, right now, anyway. If you’re self-employed, the home office deduction could be helpful at tax time. To qualify for the home office deduction, you must use a portion of your house, apartment, or condominium (or any other type of home) for your business on a regular basis, and it generally must be the principal location of your business. This is something to keep in mind if you’re in the market for a new home, since writing off a portion of your home expenses could help offset some of the costs of homeownership.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How much can I get written off for my home office?

Using the simplified method of calculating the home office deduction, you can write off up to $1,500. Using the regular method, you’ll need to determine the percentage of your home being used for business purposes. You may then be able to deduct that percentage of certain indirect expenses (like utilities, cellphone, cable, homeowners or renters insurance, property tax, HOA fees, and cleaning services). Direct expenses for the home office, such as painting, furniture, office supplies, and repairs, are generally 100% deductible.

Can I make a claim for a home office tax deduction without receipts?

The simplified method does not require detailed records of expenses. If using the regular method, you should be prepared to defend your deduction in the event of an IRS audit. The IRS says the law requires you to keep all records you used to prepare your tax return for at least three years from the date the return was filed.

What qualifies as a home office deduction?

Things like insurance, utilities, repairs, maintenance, equipment, and rent may qualify for the home office tax deduction.

Photo credit: iStock/Marija Zlatkovic

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