Tax Advantages of Treasury Securities
Treasury securities are treated differently than other investments for tax purposes.
These differences provide their owners with a number of tax advantages.
Series EE/E and I Savings Bonds
Earnings on savings bonds are exempt from both state and local income taxes, while federal taxes can be deferred until the bonds are redeemed or reach final maturity, whichever comes first. This tax deferral applies to all interest earnings including the inflation adjustment on I bonds.
For parents of college-bound students, EE Bonds issued 1990 or later and I Bonds are included in the Treasury's Education Savings Bond Program, which allows the interest on those bonds to be excluded — completely or partially ― from federal income tax when the bond owner pays tuition and fees for higher education the year the bonds are redeemed. The owner of the bond must be at least 24 years old in the month the bond is purchased, and the child may not be listed as a co-owner on the bond.
Another tax-saving option is to buy savings bonds in a child's name. If the child's interest is reported annually, taxes can be eliminated on interest earnings during years when the child's income is low.
Bond owners who want to switch from deferred reporting of interest to annual reporting of interest must do so for all savings bonds they own. They must also report all interest earned up to the year of the change in reporting procedure. The bond owner must submit IRS Form 3115 if they later wish to change back from annual reporting to deferred reporting. The fee for Form 3115 is waived in these cases.
Note: Treasury will cease to offer Series HH Bonds after August 31, 2004.
Treasury Bills, Notes, Bonds and Treasury Inflation-Protected Securities (TIPS)
Owners of Treasury notes receive interest payments every six months, which must be reported as interest income on their federal tax return in the year received. The inflation adjustment for Treasury Inflation-Protected Securities (also commonly known as TIPS) is reportable each year, unlike the inflation adjustment for I Bonds. Interest from Treasury bills must be reported in the year the bill matures or is sold.
As with savings bonds, the earnings on Treasury marketable securities are exempt from state and local income taxes.
Disclaimer: The content of this page is not affiliated with the company names or products discussed, listed, presented or shown. The information provided is for general information purposes only and without warranties of any kind. Company names and products shown may be trademarks of their respective owners.
More by this Author
Are you an employee of the Sears Holdings group and looking for HR information? This page provides an overview and summary of some of the employment resources that can be found on the company's official HR website at...
The EppiCard program is a convenient electronic payment system for receiving benefits under various state facilitated support programs. You utilize a debit card, that is pre-loaded with your monthly cash assistance, to...
No comments yet.