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How To Lower Your Taxes On Savings Bond Interest

Ken Tumin
Ken Tumin   |     |   5,935 posts since 2009

One thing nice about savings bonds is that you don't have to worry about paying taxes until you redeem the savings bond (or it matures after 30 years). However, that's not always the best approach to minimize taxes. This post at My Dollar Plan has a good review of reporting savings bond interest annually. The rules in this accrual reporting method are not flexible, so for most of us it appears the cash reporting method (report at redemption or maturity of the bond) makes the most sense.

One thing to consider as your returns are being impacted by the low interest environment is that it might be a good time to start redeeming some of your savings bonds. If the smaller returns put you in a lower tax bracket, you'll owe less income tax when you redeem the savings bond.