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Tax Advantages of Series EE Savings Bonds

figures19082355.jpgOne of the main reasons that people choose to invest in Series EE/E Savings Bonds is because of the various tax advantages that the bonds provide. Advantages that the Series EE Savings Bonds can provide you with, all of them can help with the amount you owe in taxes at the end of each year three basic tax. The different advantages are a major selling point for the Series EE Savings Bonds, so you need to take a minute to learn more about what the advantages are and how they will work in your favor.

The first tax advantage that you will benefit from is also the biggest tax advantage that the Series EE provides, which is that they are exempt from any state and local taxes. This advantage is beneficial for people who are in the higher tax brackets in states that heavily tax people who are wealthy. If you had to pay state taxes on the income you received from the Series EE Savings Bond it would increase the income that you are currently earning which can sometimes bump you up into the next tax bracket, which means more taxes are owed. Not having to pay state or local taxes on the money that is earned from the Series EE Savings Bonds means more money in your pocket, but you do have to pay federal income taxes on the money that is earned.

The second tax advantage to the Series EE Savings Bond is that you can defer the income taxes until you redeem the savings bond or until 30 years from the issue date, whichever one you prefer. Individuals can easily do this, but businesses will have to ensure that they elect cash based reporting on their income tax filings if they wish to take advantage of the deferred income. This is possible because you do not actually collect the interest that is accrued every six months like those that you do with other types of bonds, you only get the interest when you redeem the bond or cash it in early. If you do not wish to defer the income you can claim the interest income each year, but you will have to look up the interest that is earned during the year in order to claim the proper amount. The one thing that you need to keep in mind when deferring the income is that the Series EE Savings Bonds will pay interest for up to 30 years from the date they were issued, so a $5,000 bond can end up being worth $20,000 or more.

The third and final tax advantage that the Series EE Savings Bonds can provide are the tax benefits that you can receive if you invest in the bonds to help pay for college or other qualified education expenses. The best benefit that you can receive from investing in the bonds for educational purposes is that you can exclude all or part of the interest that you earn from your income taxes for years to come, once you have redeemed the bond that is. To receive this big benefit you will need to make sure that the rules are followed though. Here is a brief look at the rules you will need to follow:

  • Must be redeemed in the same year you incur the expenses for post-secondary education.

  • If you are using it for your own education, the bonds must be registered directly in your name.

  • You must be 24 years old on the first day of the month in which you purchased the bonds

  • If married you have to file a joint return to qualify for the tax exclusion.

  • You must meet the income requirements that are established by the government.

  • The institution that you are attending must qualify for the Series EE savings bonds program.

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