Today TaxMama hears from Joan in Kentucky who tells us. “My 90 year old father lives on SS and a small pension. He has a number of Series E and EE bonds maturing. Reporting the interest really hurts him at tax time. Is there any way he can cash in the bonds (about $20,000 in interest) without the pain of paying tax on the interest?”
I know. That’s a lot to be hit with at one time.
That’s why, when I know people are buying Series E & EE bonds, I generally tell them to report the interest each year, instead of waiting until the whole bond matures.
Tax Information about Series E & EE bonds
Reporting the interest annually, the taxes tend not to be much. All at once – OUCH!
What are your dad’s options?
1) There’s no way to cash the bonds without reporting the earnings.
2) If the bonds are maturing over the next couple of years, cashing them a little at time will not have a big impact on his taxes if his pension really IS small. If his pension is under $15,000, he can absorb up to $10,000 worth of interest without making his Social Security taxable – and still be in the 15% bracket.
3) He can gift some of the bonds to his grandchildren, or great-grandchildren. Spread among several people, there will be only a small tax impact.
4) Of course, he can use that money to pay for education costs for anyone who is a dependent. That will make the interest tax-free.
I hope this helps…a bit?
And remember, you’ll find answers to lots of questions, about U.S. Treasury bonds and other tax information, free. Where? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips. Please click on the subscribe link and join us.]
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- US Treasury :: Tax Information about Series E and EE bonds
- US Treasury :: Education Exclusion for Series E and EE bonds