Savings bonds can be helpful as tax time nears

Savings bonds are not subject to state or local taxes.

Investors who cashed any bonds this year and those who have income from Series H or HH bonds should remember to deduct the interest from their state income tax forms, according to a press release from the Savings Bonds Marketing Office in St. Louis.

Savings bonds interest is state tax-free and federally tax-deferred.

Investors can invest up to $15,000 per person in Series EE bonds or $30,000 in I bonds per year. I bonds currently pay 6.49 percent through April 2001 and EE bonds pay 5.54 percent.

These rates may be comparable to CD rates, especially factoring in the fact that state tax is not paid.

To compare yields, access the tax calculatorwww.savingsbonds.gov .

All savings bonds issued in January 1990 or later are eligible for a tax exemption when cashing them in the year the bondholder pays eligible tuition, with income restrictions.

Payments to state higher education savings plans also qualify.

The individual who inherits savings bonds may be able to claim the interest earned to date on the estate's final return.

The bondholder will have to keep a copy of the return if he does not intend to cash them immediately.

Savings bonds that have reached final maturity no longer earn interest and are taxable.

Bonds issued in November 1965 or earlier reach final maturity in 40 years.

If they were issued in December 1965 or later, they are 30-year bonds.

To avoid paying taxes, the bondholder can roll mature bonds into Series HH bonds within one year of final maturity.

If they are older, the bondholder must pay taxes on them whether they are cashed in or not.

Bonds purchased as gifts for minors should not be put in the name of a taxpaying adult as co-owner.

When the bond is cashed, both co-owners of a gift bond are subject to a tax liability, no matter which one cashes the bond.

Parents may cash a young child's savings bonds, but will incur a tax liability if they cannot prove the money was reinvested in the child's name or used for his or her direct benefit.