07 Jul Can I split interest on savings bonds?

 Q. Let’s say I have 50 EE savings bonds, all reaching final maturity November this year. They are all paper bonds. Can I take 25 of them to the bank to cash out and pay interest on them for tax year 2015, and then wait until 2016 and cash out the other 25? I’m wondering if that is okay to split the interest due into two tax years.

A. We’re glad you’re asking the question before making any moves that could impact your tax situation.

For starters, you need to know that not all banks redeem savings bonds.

You should ask your bank, or check out the Treasury Direct web site, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.

As for when you cash them it, that should depend on your tax situation.

Splitting the interest sounds like it could be a very good idea when the maturity date is in near the end of the tax year — like your November maturity date, said Ron Garutti, a certified financial planner with Newroads Financial Group in Clinton.

“Assuming your income is relatively consistent year to year, then splitting may cause a reduction in the total tax bill due,” Garutti said. “Considering the expiration is November, you are almost near the end of the year anyway. If the expiration was early January, then it might not make sense to wait.”

Garutti said if your income in either the current year or the following year is going to be significantly lower, then it could be beneficial to take all of the income in the lower year.

“Depending on the amount of total interest it could be wise to have your accountant prepare a mock tax return illustrating taking all interest in either year as well as splitting it,” he said. “This would give you a good sense of which direction to take.”

If your taxable interest is greater than $1,500 for the year, you must complete Schedule B and attach to your return, Garutti said. If your total interest is less than $1,500, then you simply add that with your other interest line on the “interest” line of your 1040, he said.

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This story was first posted in July 2015.