Spring Lake Heights, New Jersey (PRWEB) February 27, 2014
With tax season quickly approaching, SavingsBonds.com has identified the top five tax tips for U.S. Savings Bonds. Knowing these basics can help bond investors eliminate confusion and headaches when filing tax returns this year;
1. Interest income earned on savings bonds is subject to federal income taxes. The amount of interest income earned should be reported as ordinary income on a federal income tax return. There are no state or local income taxes due on the interest income from savings bonds.
2. If a bond was given as a gift or received as an inheritance, the bond is subject to estate, gift, inheritance and/or any other excise taxes.
3. Taxes on savings bonds can be deferred until the owner either cashes in the bond or the bond reaches it's final maturity (usually 30 years), whichever occurs first.
4. When cashing in paper savings bonds, the institution that cashes the bonds will report the interest earned amounts (over $10) to both the individual who redeemed it and the IRS, on a form 1099-INT either at the time of redemption, or it will be mailed after the end of the year in which the bond was redeemed. When redeeming electronic bonds, a 1099-INT is automatically generated through TreasuryDirect and a copy of the form can be printed.
5. If using savings bonds for education purposes, bond owners may not have to pay savings bonds interest income, based on the education tax exclusion. This allows qualified taxpayers (based on tax filing status, income and other criteria) to exclude all or part of the interest earned on their bonds from their gross income. The bond owner must pay education expenses to a qualified educational institution and can only cover specific education related expenses. The education tax exclusion can only be applied to education expenses incurred in the same year. Go to http://www.savingbonds.com Bond Information Center for details on Education Bonds.
Savings bonds are often viewed as a very simple and straightforward investment to purchase and own. However, understanding savings bond tax implications, especially upon redemption, and whether they should be reported on tax returns is not that easy.
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