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What Is Taxable?
When you cash in savings bonds you may be concerned with paying taxes on savings bonds. All the interest earned on a savings bond or a treasury bond is taxable, and it is important that you claim the correct amount each year or you may be held liable if the IRS audits you. The interest earned on savings bond is what is taxable. The forms that deal with dividends, capital gains and interest earned will also involve savings bonds. Paying taxes on savings bonds is an easy process.
When you redeem your savings bonds at the bank you will be required to fill out a form that will be used by the bank to issue a 1099-INT form. This form makes paying taxes on savings bonds a much easier process. This allows you to pay taxes on the interest only when you cash in the bond. When you file your taxes there is a line that asks you to record any interest earned that have been reported on a 1099-form, this is how you will pay your taxes on savings bonds.
If you have an electronic bond, you will be issued a 1099-INT at the time that you redeem the savings bonds. When you redeem the bonds the website will produce a 1099-INT form that will you need to print at that time and save until you file your taxes. When you file your taxes you will use that form to report the interest you earned correctly.
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Accrual Interest Reporting
There is another option you can use to pay taxes on the interest earned by your savings bonds. It is called Accrual Interest Reporting. When you choose to do this method, you must report the amount of interest you earned each year on each bond whether or not you cashed it out. Once you begin to use this method you must continue to use it as long as you file taxes. It is much easier to file the interest earnings when you cash out your bonds.
Paying taxes on savings bonds is not a complicated process, but it is important to be aware that you must pay taxes on the money you earned. To make the process easier you may want to cash all of your bond in at the same financial institution so that you will only receive the one 1099-INT form. You may also want to keep a record as you cash in the bonds to make sure that form has the correct information on it.
For an overview of everything related to savings bonds, check out: All you Need to Know about Savings Bonds.