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In: Accounting

New attempt is in progress. Some of the new entries may impact the last attempt grading.Your...


New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is incorrect.


Tyler is 18 years old. He has $3,000 worth of EE bonds in his name. He received the bonds as gifts over the years. He is hoping to cash in the bonds and use the proceeds for college. Which of the following statements is true in relation to his goal?

Because he is using the bonds for college, he will not owe taxes when the bonds are redeemed.


Because he is younger than age 24 and single, he will not owe taxes when the bonds are redeemed.

Because he received the bonds as a gift, he must pay taxes on the full amount of the redemption.

Because he is younger than age 24, he will need to pay taxes on the interest earned when the bonds are redeemed.

Solutions

Expert Solution

Here option no 01 is correct.

Because he is using the bonds for college, he will not owe taxes when the bonds are redeemed .

At the time of redemption of EE Bonds if anybody use the money towards qualified higher education costs ( As you mentioned for college) for himself or for herself or for any dependents, the person can avoid paying taxes on it.

It has some qualification criteria like

1. It must be issued after 1989

2. You must pay education expenditures in the same year of redemption .

3. You have to use the whole proceeds of redemption of your bonds, both principal and interest for education cost.

4. The school must be one with a student aid program within US department of education .

5. If you own it then you can use the proceeds of redemption for paying your higher education cost till you have not reach the age of 24 years. If you already reached at 24 years then you can avoid tax payment if you use the proceeds of redemption of EE bonds for your children education.

ekkarill92 answered 1 year ago
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