Question

In what ways are U.S. savings bonds treated more favorably for tax purposes than corporate bonds?

Answer 1

U.S. savings bonds are treated more favorably for tax purposes than corporate bonds. They have exemptions from state and local taxes, offer tax advantages for qualified higher education expenses, and allow for deferred federal income tax on interest.

Step-by-step explanation:

U.S. savings bonds are treated more favorably for tax purposes than corporate bonds in several ways:

1. Interest earned on U.S. savings bonds is exempt from state and local taxes, whereas interest earned on corporate bonds is subject to those taxes.
2. If U.S. savings bond holders use the funds to pay for qualified higher education expenses, they may not have to pay federal income tax on the interest earned. There is no equivalent tax benefit for corporate bond holders.
3. When U.S. savings bonds are redeemed, the interest is generally subject to federal income tax, but it can be deferred until the bond is redeemed or reaches maturity. In contrast, the interest earned on corporate bonds is generally subject to federal income tax for the year in which it is earned.