This Daily Tax Tip Spotify Podcast and/or WordPress Blog Post understands that you recently purchased several U.S. savings bonds and wish to know how you must Report the Interest Income on these U.S Savings Bonds.
If you use the Cash Method of Accounting, as most individual taxpayers do, you generally report the interest on U.S. savings bonds when you receive it. However, you report the interest on Series EE, Series E, and series I bonds in either of the following ways:
Method 1: Postpone reporting the interest until the earlier of the year the bonds are Cashed in or Disposed of or the year in which they mature.
Method 2: Elect to report the increase in Redemption Value as Interest Each Year.
You must use the same method for all the Series EE, series E, and series I Bonds you own. If do not choose Method 2 by reporting the increase in redemption value as interest each year, you must use Method 1.
Note that if you plan to cash your bonds in the same year you will pay for higher educational expenses, you may want to use Method 1, because you may be able to Exclude the Interest from your Income.
You do not have to get IRS permission if you want to Change your Method of Reporting the interest from Method 1 to Method 2. In the year of change, you simply report all interest accrued to date and not previously reported for all your bonds.
Once you elect to report the interest each year under Method 2, you must continue to do so for all Series EE, Series E, and Series I Bonds you own and for any you receive later, unless the IRS grants you permission to change.
However, permission for the change to Method 1 is automatically granted if you file a statement with certain required information as detailed in an IRS Revenue Procedure. You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). Permission to change to Method 1 will be granted on a prospective basis only.
If you use an Accrual Method of Accounting, you must report interest on U.S. savings bonds each year as it accrues. You cannot postpone reporting interest until you receive it or until the bonds mature.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.
(Updated 04022021 320-225)