Buying a saving bond for child: yearly or deferred taxation of interest?

Home Fairmark Forum Kids and College Buying a saving bond for child: yearly or deferred taxation of interest?

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  • #72526
    boyd s
    Participant

    When buying a savings bond (as a gift?) for my minor dependent son, I have the following two tax options:
    1) report the interest every year
    2) put off (defer) reporting the interest until you file a federal income tax return for the year in which the bond is sold…

    I want to do the first option (yearly) since it seems that doing so would result in lower overall taxes for my son–he currently has little or no other sources of taxable income, so if instead, I chose the deferred/lump-sum option, that would happen at an older age when my son more likely to have taxable income and be caught in a higher bracket.

    But right now, even with the bond’s taxable income, my son would not have enough income to have to file a return. So if he doesn’t file a return, how will the IRS know that he is “paying” his taxes on interest yearly rather than deferred/lump-sum? Do I need to file returns for my son each year, even though they aren’t required, in order to establish yearly taxation of the bond interest is in effect?

    • This topic was modified 1 month, 2 weeks ago by boyd s.
    #72564
    Kaye Thomas
    Moderator

    This issue is relevant if you choose to create a custodial account for your son, as described in my response to your other post. To choose to report the income each year, file a return for your son for the first year to which this applies, reporting the amount of interest up to that point and stating that the child chooses to pay interest annually. Retain a copy of this return. Returns are not required for subsequent years if your son doesn’t meet the income threshold for filing. See page 8 of IRS Pub 550.

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