ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, December 9, 1996 TAG: 9612100005
SECTION: MONEY PAGE: 6 EDITION: METRO
COLUMN: MONEY MATTERS
SOURCE: MAG POFF
Q: Can you please print the telephone number for the Virginia prepaid college tuition program again? I neglected to record it.
A: The telephone number for people interested in prepaying tuition at Virginia colleges for their children is 1-888-567-0540.
Reporting interest on
U.S. Savings Bonds
Q: How do I report to the Internal Revenue Service the interest income earned on Series E U.S. Savings Bonds? My annual income is less than the amount required for filing a tax return at the end of the year. I own several Series E bonds that will mature soon (after 30 years), and I understand the tax on the interest is due at maturity.
A: Internal Revenue Service Publication 17, "Your Federal Income Tax," contains, starting at page 68, an excellent discussion of the taxation on U.S. Savings Bonds, according to Mary Anne McElmurray, a certified public accountant with the Roanoke firm of Brown, Edwards & Co. You should be able to get this publication from your library or the nearest IRS office. But she said a short overview of the publication might help you and others in your situation.
Series E bonds are a type of instrument called discounted bonds: investments purchased at a price lower than the face (or stated) amount of the instrument, McElmurray said.
Generally, so long as you bought the bonds, rather than receiving them as a beneficiary of an estate or by other means, the interest on discounted bonds is represented by the difference in what you pay for the bonds and what you receive upon their redemption at maturity. Banks, or other payers who redeem bonds, use tables issued by the U.S. Treasury to determine redemption value, she said.
The original maturity period for Series E bonds has been extended, McElmurray said. For Series E bonds issued between May 1941 and November 1965, the instruments mature 40 years from their issue dates.
You can report interest on Series E, and other discounted savings bonds, in either of two ways.
You can postpone reporting the interest until the year you cash in the bonds or the year in which they finally mature, she said. In the alternative, you may choose to report the increase in redemption value as interest each year while holding the bonds. Some rules govern switching between the two methods.
From the facts stated in your letter, McElmurray said, it appears that you have chosen to postpone reporting the interest on your bonds until maturity.
Now it's time to do some tax planning, she said.
You should take a list of your bonds, their cost and their purchase dates to your bank or to another institution that offers redemption services. A customer service employee of the institution can consult the Treasury tables and provide you with the amount of interest you earned on each bond.
U.S. bond interest is taxable for federal, but not for state, income tax purposes. Therefore, you should determine whether redeeming all of the bonds will increase your taxable income enough to cause you to pay federal taxes.
If so, McElmurray said, you may choose to redeem certain bonds to keep under this tax threshold, then redeem others in a later tax year. Of course, the final decision depends on the maturity date, which may be 40 years.
When you cash in a bond, she said, the bank or other payer that redeems it must give you a form 1099-INT in January following the year of surrender. Box 3 of this form reports as interest the difference between the amount you received and the amount you paid for the bond. However, in cases where you were not the original purchaser of the bond, you must adjust this amount for other factors, as outlined in Publication 17.
LENGTH: Medium: 71 linesby CNB