If you own U.S. Savings Bonds issued years ago—maybe you inherited them or received them as gifts from relatives—you should check the maturity dates.
Strategy: Redeem the bonds if they’re close to maturity or have already matured. Not only do U.S. Savings Bonds stop paying interest, the IRS says they are taxable in the year of maturity, whether or not you cash them in.
Generally, the full amount of the accumulated interest on a U.S. Savings Bond is subject to tax when it matures or when you cash it in (whichever comes first), unless you’ve elected to report the annual accrual of interest income on your tax returns over the years. If you’ve made this annual accrual election, it applies to all U.S. Savings Bonds you own. If, like most people, you did not make the annual accrual election, you might face a hefty tax bill if you have numerous bonds maturing in the same year, because you will have to report lots of accumulated interest income in that year. And the IRS could tack on penalties if you haven’t reported the accumulated interest on bonds that have matured prior to this year.
Tip: If appropriate, file an amended return for any open year and take your tax lumps.