How to Figure Taxes on Series E Bonds
- 1). Choose to defer reporting the interest on your Series E savings bonds until you redeem them if you expect to fall in a lower income tax bracket in the year you redeem them. If you expect to be in a much higher income tax bracket at redemption, you can elect to pay taxes on the interest as it accrues each year. However you must make this decision in the first year you own the bond. If you elect to wait until redemption to report the interest on your taxes, skip to step 5.
- 2). Download Public Debt Form 3501 from the U.S. Treasury website (see Resources).
- 3). Use the tables in public Debt Form 3501 to determine how much interest has accrued on your savings bond during the year. This is the amount you will have to report on your federal income tax return.
- 4). Multiply your accrued interest by your marginal tax rate to calculate how much your tax liability will increase because of your savings bond interest. For example, if you had $50 in savings bond interest and your marginal tax rate equals 25 percent, you would multiply $50 by 0.25 to find that you would owe $12.50 in extra taxes.
- 5). Consult your form 1099-INT to determine how much interest you earned on your savings bonds over their life if you elect to wait until you redeem the bonds to report the interest. You will receive the form 1099-INT to document the interest earned for tax purposes.
- 6). Multiply your accrued interest by your marginal tax rate to calculate how much your tax liability will increase by because of your savings bond interest. For example, if you had $500 in savings bond interest and your marginal tax rate equals 25 percent, you would multiply $500 by 0.25 to find that you would owe $125 in extra taxes.
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