Interest is handled differently for U.S. Savings bonds because it compounds. If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U.S. Savings bonds when you receive it. Use the Reinvest Income form to correctly track your cost basis and tax implications, as described below.
If you use the accrual method of accounting, you must report interest on U.S. Savings bonds each year as it accrues. For details, see zero-coupon bonds.
With Series I Savings Bonds and TIPs (Treasury Inflation-Protected Securities), the Treasury Department adjusts interest rates for inflation every 6 months. This works somewhat like an adjustable rate mortgage.
- Open the account you want to use.
- Click Enter Transactions.
- In the Enter Transaction list, select Reinvest - Income Reinvested.
- In the Security name field, select the bond.
- Use the applicable fields in this dialog to record the interest you've received and are going to reinvest (not all fields are required).
- Click Enter/New to enter another transaction, or Enter/Done to finish.
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