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Digital assets and taxes: What you need to know
Digital assets and taxes: What you need to know 1200 1200 Noelle Merwin

As the use of digital assets like cryptocurrencies continues to grow, so does the IRS’s scrutiny of how taxpayers report these transactions on their federal income tax returns. The IRS has flagged this area as a key focus. To help you stay compliant and avoid tax-related complications, here are the basics of digital asset reporting.

The definition of digital assets

Digital assets are defined by the IRS as any digital representation of value that’s recorded on a cryptographically secured distributed ledger (also known as blockchain) or any similar technology. Common examples include:

  • Cryptocurrencies, such as Bitcoin and Ethereum,
  • Stablecoins, which are digital currencies tied to the value of a fiat currency like the U.S. dollar, and
  • Non-fungible tokens (NFTs), which represent ownership of unique digital or physical items.

If an asset meets any of these criteria, the IRS classifies it as a digital asset.

Related question on your tax return

Near the top of your federal income tax return, there’s a question asking whether you received or disposed of any digital assets during the year. You must answer either “yes” or “no.”

When we prepare your return, we’ll check “yes” if, during the year, you:

  • Received digital assets as compensation, rewards or awards,
  • Acquired new digital assets through mining, staking or a blockchain fork,
  • Sold or exchanged digital assets for other digital assets, property or services, or
  • Disposed of digital assets in any way, including converting them to U.S. dollars.

We’ll answer “no” if you:

  • Held digital assets in a wallet or exchange,
  • Transferred digital assets between wallets or accounts you own, or
  • Purchased digital assets with U.S. dollars.

Reporting the tax consequences of digital asset transactions

To determine the tax impact of your digital asset activity, you need to calculate the fair market value (FMV) of the asset in U.S. dollars at the time of each transaction. For example, if you purchased one Bitcoin at $93,429 on May 21, 2025, your cost basis for that Bitcoin would be $93,429.

Any transaction involving the sale or exchange of a digital asset may result in a taxable gain or loss. A gain occurs when the asset’s FMV at the time of sale exceeds your cost basis. A loss occurs when the FMV is lower than your basis. Gains are classified as either short-term or long-term, depending on whether you held the asset for more than a year.

Example: If you accepted one Bitcoin worth $80,000 plus $10,000 in cash for a car with a basis of $55,000, you’d report a taxable gain of $35,000. The holding period of the car determines whether this gain is short-term or long-term.

How businesses handle crypto payments

Digital asset transactions have their own tax rules for businesses. If you’re an employee and are paid in crypto, the FMV at the time of payment is treated as wages and subject to standard payroll taxes. These wages must be reported on
Form W-2.

If you’re an independent contractor compensated with crypto, the FMV is reported as nonemployee compensation on Form 1099-NEC if payments exceed $600 for the year.

Crypto losses and the wash sale rule

Currently, the IRS treats digital assets as property, not securities. This distinction means the wash sale rule doesn’t apply to cryptocurrencies. If you sell a digital asset at a loss and buy it back soon after, you can still claim the loss on your taxes.

However, this rule does apply to crypto-related securities, such as stocks of cryptocurrency exchanges, which fall under the wash sale provisions.

Form 1099 for crypto transactions

Depending on how you interact with a digital asset, you may receive a:

  • Form 1099-MISC,
  • Form 1099-K,
  • Form 1099-B, or
  • Form 1099-DA.

These forms are also sent to the IRS, so it’s crucial that your reported figures match those on the form.

Evolving landscape

Digital asset tax rules can be complex and are evolving quickly. If you engage in digital asset transactions, maintain all related records — transaction dates, FMV data and cost basis. Contact your Smolin advisor with questions. This will help ensure accurate and compliant reporting, minimizing your risk of IRS penalties. 

  • Noelle Merwin
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Can you turn business losses into tax relief?
Can you turn business losses into tax relief? 1200 1200 Noelle Merwin

Even well-run companies experience down years. The federal tax code may allow a bright strategy to lighten the impact. Certain losses, within limits, may be used to reduce taxable income in later years.

Who qualifies?

The net operating loss (NOL) deduction levels the playing field between businesses with steady income and those with income that rises and falls. It lets businesses with fluctuating income to average their income and losses over the years and pay tax accordingly.

You may be eligible for the NOL deduction if your deductions for the tax year are greater than your income. The loss generally must be caused by deductions related to your:

  • Business (Schedules C and F losses, or Schedule K-1 losses from partnerships or S corporations),
  • Casualty and theft losses from a federally declared disaster, or
  • Rental property (Schedule E).

The following generally aren’t allowed when determining your NOL:

  • Capital losses that exceed capital gains,
  • The exclusion for gains from the sale or exchange of qualified small business stock,
  • Nonbusiness deductions that exceed nonbusiness income,
  • The NOL deduction itself, and
  • The Section 199A qualified business income deduction.

Individuals and C corporations are eligible to claim the NOL deduction. Partnerships and S corporations generally aren’t eligible, but partners and shareholders can use their separate shares of the business’s income and deductions to calculate individual NOLs.

What are the changes and limits?

Before the Tax Cuts and Jobs Act (TCJA), NOLs could be carried back two years, forward 20 years, and offset up to 100% of taxable income. The TCJA changed the landscape:

  • Carrybacks are eliminated (except certain farm losses).
  • Carryforwards are allowed indefinitely.
  • The deduction is capped at 80% of taxable income for the year.

If an NOL carryforward exceeds your taxable income of the target year, the unused balance may become an NOL carryover. Multiple NOLs must be applied in the order they were incurred.

What’s the excess business loss limitation?

The TCJA established an “excess business loss” limitation, which took effect in 2021. For partnerships and S corporations, this limitation is applied at the partner or shareholder level, after the outside basis, at-risk and passive activity loss limitations have been applied.

Under the rule, noncorporate taxpayers’ business losses can offset only business-related income or gain, plus an inflation-adjusted threshold. For 2025, that threshold is $313,000 ($626,000 if married filing jointly). Remaining losses are treated as an NOL carryforward to the next tax year. In other words, you can’t fully deduct them because they become subject to the 80% income limitation on NOLs, reducing their tax value.

Important: Under the Inflation Reduction Act, the excess business loss limitation applies to tax years through 2028. Under the TCJA, it had been scheduled to expire after December 31, 2026.

Plan proactively

Navigating NOLs and the related restrictions is complex, especially when coordinating with other deductions and credits. Thoughtful planning can maximize the benefit of past losses. Please consult with your Smolin advisor about how to proceed in your situation.

  • Noelle Merwin
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Still have tax questions? You’re not alone
Still have tax questions? You’re not alone 1200 1200 Noelle Merwin

Even after your 2024 federal return is submitted, a few nagging questions often remain. Below are quick answers to five of the most common questions we hear each spring.

1. When will my refund show up?

Use the IRS’s “Where’s My Refund?” tracker at IRS.gov. Have these three details ready:

  • Social Security number,
  • Filing status, and
  • Exact refund amount.

Enter them, and the tool will tell you whether your refund is received, approved or on the way.

2. Which tax records can I toss?

At a minimum, keep tax records related to your return for as long as the IRS can audit your return or assess additional taxes. In general, the statute of limitations is three years after you file your return.

So you can generally get rid of most records related to tax returns for 2021 and earlier years. (If you filed an extension for your 2021 return, hold on to your records until at least three years from when you filed the extended return.)

However, the statute of limitations extends to six years for taxpayers who understate their gross income by more than 25%.

You should hang on to certain tax-related records longer. For example, keep the actual tax returns indefinitely, so you can prove to the IRS that you filed legitimate returns. (There’s no statute of limitations for an audit if you didn’t file a return or you filed a fraudulent one.)

When it comes to retirement accounts, keep records associated with them until you’ve depleted the account and reported the last withdrawal on your tax return, plus three (or six) years. And retain records related to real estate or investments for as long as you own the asset, plus at least three years after you sell it and report the sale on your tax return. (You can keep these records for six years to be on the safe side.)

3. I missed a credit or deduction. Can I still get a refund?

Yes. You can generally file Form 1040-X (amended return) within:

  • Three years of the original filing date, or
  • Two years of paying the tax — whichever is later.

In a few instances, you have more time. For instance, you have up to seven years from the due date of the return to claim a bad debt deduction.

4. What if the IRS contacts me about the tax return?

It’s possible the IRS could have a problem with your return. If so, the tax agency will only contact you by mail — not phone, email or text. Be cautious about scams!

If the IRS needs additional information or adjusts your return, it will send a letter explaining the issue. Contact us about how to proceed if we prepared your tax return.

5. What if I move after filing?

You can notify the IRS of your new address by filling out Form 8822. That way, you won’t miss important correspondence.

Year-round support

Questions about tax returns don’t stop after April 15 — and neither do we. Reach out to your Smolin advisor anytime for guidance.

  • Noelle Merwin
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Members of the “sandwich generation” face unique estate planning circumstances
Members of the “sandwich generation” face unique estate planning circumstances 1200 1200 Noelle Merwin

Members of the sandwich generation — those who find themselves simultaneously caring for aging parents while supporting their own children — face unique financial and emotional pressures. One critical yet often overlooked task amid this juggling act is estate planning.

How can you best handle your parents’ financial affairs in the later stages of life? Consider incorporating their needs into your estate plan while tweaking, when necessary, the arrangements they’ve already made. Let’s take a closer look at four critical steps.

  1. Make cash gifts to your parents and pay their medical expenses

One of the simplest ways to help your parents is to make cash gifts to them. If gift and estate taxes are a concern, you can take advantage of the annual gift tax exclusion. For 2025, you can give each parent up to $19,000 without triggering gift taxes or using your lifetime gift and estate tax exemption. The exemption amount for 2025 is $13.99 million.

Plus, payments to medical providers aren’t considered gifts, so you can make such payments on your parents’ behalf without using any of your annual exclusion or lifetime exemption amounts.

  1. Set up trusts

There are many trust-based strategies you can use to assist your parents. For example, if you predecease your parents, your estate plan might establish a trust for their benefit, with any remaining assets passing to your children when your parents die.

Another option is to set up trusts during your lifetime that leverage your $13.99 million gift and estate tax exemption. Properly designed, these trusts can remove assets — together with all future appreciation in their value — from your taxable estate. They can provide income to your parents during their lives, eventually passing to your children free of gift and estate taxes.

  1. Buy your parents’ home

If your parents have built up significant equity in their home, consider buying it and leasing it back to them. This arrangement allows your parents to tap their home’s equity without moving out while providing you with valuable tax deductions for mortgage interest, depreciation, maintenance and other expenses.

To avoid negative tax consequences, pay a fair price for the home (supported by a qualified appraisal) and charge your parents fair-market rent.

  1. Plan for long-term care expenses

The annual cost of long-term care (LTC) can easily reach six figures. Expenses can include assisted living facilities, nursing homes and home health care.

These expenses aren’t covered by traditional health insurance policies or Social Security, and Medicare provides little, if any, assistance. To prevent LTC expenses from devouring your parents’ resources, work with them to develop a plan for funding their health care needs through LTC insurance or other investments.

Don’t forget about your needs

As part of the sandwich generation, it’s easy to lose sight of yourself. After addressing your parents’ needs, focus on your own. Are you saving enough for your children’s college education and your own retirement? Do you have a will and power of attorney in place for you and your spouse?

With proper planning, you’ll make things less complex for your children so they might avoid some of the turmoil that you could be going through.

If you have questions about estate planning strategies tailored to the needs of the sandwich generation, reach out to your Smolin advisor.

  • Noelle Merwin
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What 2025 Business Tax Changes Mean for You
What 2025 Business Tax Changes Mean for You 1200 1200 Noelle Merwin

Every year, tax-related limits for businesses are adjusted for inflation, and for 2025, many of these limits have increased. However, with inflation cooling down, the increases aren’t as significant as they’ve been in recent years. Here’s a rundown of the changes that might impact you and your business.

2025 deductions compared with 2024

  • Section 179 expensing
    • Limit: $1.25 million (up from $1.22 million)
    • Phaseout: $3.13 million (up from $3.05 million)
    • For certain heavy vehicles: $31,300 (up from $30,500)
  • Standard mileage rate for business driving. 70 cents per mile up from 67 cents
  • Income-based phaseouts for certain limits on the Sec. 199A qualified business income deduction begin at:
    • Married filing jointly: $394,600 (up from $383,900)
    • Other filers: $197,300 (up from $191,950)

Retirement plans in 2025 vs. 2024

401(k) contributions

  • Employee Contributions: $23,500 (up from $23,000)
  • Catch-Up Contributions: $7,500 (unchanged)
  • Catch-Up for Ages 60–63: $11,250 (new for 2025)

Employee contributions to SIMPLEs

  • Employee contributions: $16,500 (up from $16,000)
  • Catch-Up contributions: $3,500 (unchanged)
  • Catch-Up for ages 60–63: $5,250 (new for 2025)

Defined contribution plans

  • Combined employer/employee contributions: $70,000 (up from $69,000)
  • Maximum compensation used: $350,000 (up from $345,000)

Defined benefit plans

  • Annual benefit: $280,000 (up from $275,000)

Compensation limits for highly compensated or key employees

  • Highly compensated: $160,000 (up from $155,000)
  • Key employee: $230,000 (up from $220,000)

These increases mean more opportunities for contributions and potential tax savings in 2025.

Social Security tax in 2025 vs. 2024 

Cap on earnings subject to tax: $176,100 (up from $168,600 in 2024)

Qualified transportation fringe benefits: $325/month (up from $315)

Health Savings Account contributions:

  • Individual coverage: $4,300 (up from $4,150)
  • Family coverage: $8,550 (up from $8,300)
  • Catch-up contribution: $1,000 (unchanged)

Flexible Spending Account contributions:

  • Health Care FSA: $3,300 (up from $3,200)
  • Health Care FSA rollover: $660 (up from $640, if plan allows)
  • Dependent Care FSA: $5,000 (unchanged)

Potential upcoming tax changes

These are just a few of the tax limits and deductions that might affect your business in 2025. But there’s more to watch out for. With President Trump back in office and Republicans controlling Congress, several proposed tax changes could be on the horizon.

For example, Trump has suggested lowering the corporate tax rate (currently at 21%) and eliminating taxes on overtime pay, tips, and Social Security benefits. These and other potential changes could have significant impacts on both businesses and individuals.

It’s important to stay informed and reach out to your Smolin advisor to find out how these changes might affect you.

  • Noelle Merwin
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Which Financing Option is Right for Your Small Business?
Which Financing Option is Right for Your Small Business? 1200 1200 Noelle Merwin

Most small businesses need cash infusions at some point, and how you secure the funding can make all the difference between whether your business succeeds or struggles. To help determine which is best for your business, let’s break down the three primary types of funding available: debt, equity and hybrid financing.

Debt: Borrowing to grow

Debt financing involves borrowing money and repaying it with interest over time. This includes traditional options like bank loans, lines of credit, and Small Business Administration (SBA) loans.

The main benefit of these options is that you retain full ownership of your business, though loan payments can put a strain on cash flow. Also, lenders often require collateral—like equipment, real estate or other assets. If payments are missed, creditors can seize the collateral and, in some cases, pursue legal action against the business or owners.

This option works best for businesses that have stable revenue and are able to make timely payments. And since you retain ownership, you preserve control over decision-making. However, if your cash flow can’t sustain the regular loan payments, debt financing is not a workable option.

Equity: Trading ownership for capital

Equity financing means selling a portion of your business to investors in exchange for capital. Common sources of equity funding include:

  • Angel investors
  • Venture capital firms
  • Crowdfunding platforms

Unlike debt financing, equity financing doesn’t require repayment, but it does mean giving up some ownership and potentially sharing future profits.

This option is often best for start-ups or high-growth businesses that may not qualify for traditional loans due to limited profitability or lack of a solid credit history. While equity investors can offer valuable guidance, expertise, and networking opportunities, it’s important to consider the trade-offs like shared decision-making and less control over the direction of your business.

Hybrid financing: Combining debt and equity

Hybrid financing combines elements of both debt and equity financing. Examples include convertible notes, where debt is converted into equity under certain conditions, and revenue-based financing, where repayments are based on a percentage of future revenue. These options offer more flexibility by aligning payment terms with your business’s performance.

Hybrid financing is a good choice for business owners looking for tailored funding solutions. It allows you to leverage the benefits of debt and equity, but the terms can be complex and require careful negotiation to ensure they fit the needs of your business.

Financial statements matter

Accurate financial statements are essential when seeking funding for your business. Lenders and investors will want to see a detailed and comprehensive financial package that includes:

  • Income statements, which show revenue, costs, and profits
  • Balance sheets, which summarize your assets and liabilities
  • Statements of cash flows, which detail how money flows in and out of your business

Additionally, you might be asked to provide supporting reports like accounts receivable aging, detailed expense breakdowns, and information about owners and key employees. These documents provide a clear picture of your business’s financial health and operations, so potential funders can evaluate the risks and potential rewards of their investment.

Most lenders and investors will expect to see at least two to three years of historical financial data, along with projections for the next two to three years. These reports should tell a clear, compelling story about your business’s financial stability and growth potential.

What’s right for your business?

Choosing the right way to fund your business comes down to your business model, growth stage, goals, and how much risk you’re willing to tolerate. As your business’s needs evolve, you might end up using a combination of debt, equity and hybrid financing.

Your Smolin advisor can help you keep your financial records in check and walk you through the pros and cons of each option. Reach out and let’s talk about how to fund the next phase of your business’s growth.

  • Noelle Merwin
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S Corporation vs. Partnership: What’s Best for Your Business?
S Corporation vs. Partnership: What’s Best for Your Business? 1200 1200 Noelle Merwin

Starting a business with partners and not sure which entity to choose? An S corporation could be the perfect fit for your new venture.

One benefit of an S corporation

One big perk of an S corporation is that shareholders aren’t personally liable for the company’s debts. To keep that protection intact, make sure you:

  • Properly fund the corporation
  • Keep it separate from personal finances
  • Follow state requirements (like filing articles of incorporation, adopting bylaws, electing a board of directors, and holding organizational meetings).

Handling losses

If you expect early losses, an S corporation offers a better tax advantage than a C corporation.

While C corp shareholders don’t get tax benefits from losses, S corp shareholders can deduct their share of losses on personal tax returns—up to the amount they’ve invested in the business. Losses that exceed your basis can be carried forward to offset future profits when there’s sufficient basis.

Profits and taxes

Once the S corporation starts earning profits, the income is taxed directly to you, regardless of whether it’s distributed. This income is reported on your personal tax return and combined with your other earnings.

Your share of the S corporation’s income isn’t hit with self-employment tax, but your wages are subject to Social Security taxes. If the income qualifies as qualified business income (QBI), you can take a 20% pass-through deduction, subject to certain limitations.

Note: The QBI deduction is set to expire after 2025 unless Congress extends it. However, there’s a good chance it will be extended—and possibly even made permanent—under ongoing Tax Cuts and Jobs Act negotiations.

Fringe benefits

If you’re offering fringe benefits like health and life insurance, keep in mind that while the company can deduct the cost for shareholders owning more than 2%, the benefits will be taxable to the recipient.

Protecting S status

Be careful about transferring stock to ineligible shareholders (like another corporation, a partnership or a nonresident alien), as it could terminate your S election, turning the corporation into a taxable entity.

To avoid this risk, have shareholders sign an agreement to prevent transfers that would jeopardize the S status. Also, remember that an S corporation can’t have more than 100 shareholders.

Final steps

Before settling on your business entity, reach out to your Smolin advisor to discuss your options. We’re here to answer your questions and help set your new venture up for success.

Make Smart Moves for Your 401(k) in 2025
Make Smart Moves for Your 401(k) in 2025 850 500 smolinlupinco

Retirement may seem far off, but smart saving now can make all the difference—and a 401(k) is one of the best ways to do that. If your employer offers a 401(k) or Roth 401(k), contributing as much as you can in 2025 is a smart way to build your nest egg.

If you’re not already contributing the maximum allowed, this might be the year to bump your contributions. Thanks to tax-deferred compounding (or tax-free for Roth accounts) growth, even small increases can make a big difference in your retirement savings.

With a 401(k), you choose to set aside a certain amount of your paycheck, and your employer contributes it to your retirement plan. Contribution limits are adjusted for inflation annually with a modest increase in 2025. The limit will be $23,500 (up from $23,000 in 2024).

Employees who are 50 or older by year-end can also make an additional $7,500 in “catch-up” contributions, allowing them to save up to $31,000 in 2025 (up from $30,500 in 2024).

Starting in 2025, a new law allows certain 401(k) plan participants to contribute even more. Those who are 60, 61, 62 or 63 in 2025 can make catch-up contributions of $11,250.

Note: These contribution amounts also apply to 403(b)s and 457 plans.

Traditional 401(k)s

A traditional 401(k) has several benefits, including:

  • Pretax contributions. These can lower your modified adjusted gross income (MAGI) and may even help you reduce or avoid the 3.8% net investment income tax.
  • Tax-deferred growth. This means you won’t pay income tax on the earnings until you take distributions.
  • Employer matching. The option allows your employer to contribute pretax funds, potentially matching some or all of your contributions.

If you already have a 401(k) plan, take some time to review your contributions and consider increasing your contribution rate to get as close to the $23,500 limit (plus any eligible catch-up amount) as your budget will allow. Since the contributions are pretax, you’ll also see a reduction in taxable income on your paycheck.

Roth 401(k)s

If your employer also offers a Roth option in its 401(k) plans, you can choose to make some or all of your contributions as Roth contributions. While these won’t reduce your current MAGI, qualified distributions will be tax-free.

Roth 401(k) contributions can be particularly beneficial for higher-income earners who aren’t eligible to contribute to a Roth IRA. This is because the ability to contribute to a Roth IRA is reduced or phased out once your adjusted gross income (AGI) exceeds certain amounts.

Planning for the future

If you have questions about how much to contribute or how to best balance traditional and Roth 401(k) contributions, reach out to your Smolin advisor.  We’re also here to help you explore additional tax and retirement-saving strategies that might fit your needs.

How the 2025 Mileage Rate Change Affects Your Business Tax Deductions
How the 2025 Mileage Rate Change Affects Your Business Tax Deductions 850 500 smolinlupinco

With nationwide gas prices higher than a year ago, it’s good news that the 2025 optional standard mileage rate for business vehicle use has increased too. The IRS recently announced that the cents-per-mile rate for operating a car, van, pickup, or panel truck will be 70 cents in 2025, up from 67 cents per mile in 2024. This rate applies to all types of vehicles, including gasoline, diesel-powered, electric, and hybrid-electric models.

The process of calculating rates

The 3-cent increase from the 2024 rate aligns with recent trends in gas prices. On January 17, 2025, the national average for regular gas was $3.11 per gallon, up from $3.08 last year, according to AAA Fuel Prices. But the standard mileage rate takes into account all vehicle-related costs, not just the price of gas.

The business cents-per-mile rate is actually updated annually based on an IRS study that examines the fixed and variable costs of operating a vehicle, including gas, maintenance, repairs, and depreciation. When gas prices significantly change, the IRS may adjust the rate midyear.

Standard rate or real expenses

Businesses can deduct the direct costs tied to using a vehicle for business such as gas, oil, tires, insurance, repairs, and registration fees. Vehicle depreciation can also be claimed, but certain limits apply to vehicle depreciation that don’t apply to other types of business assets.

The cents-per-mile rate is an excellent option if you prefer not to track every vehicle-related expense. With this method, instead of itemizing all actual expenses, you only need to log key details, like mileage, date, and destination for business trips.

Businesses that reimburse employees for using their personal vehicles for work often favor the cents-per-mile rate. This approach can help attract and retain employees who frequently drive for business since, under current law, employees can’t deduct unreimbursed business mileage on their own tax returns.

If you choose the cents-per-mile rate, just be sure to follow all the necessary rules. If you fail to do so, the reimbursements could be classified as taxable wages for your employees.

When you can’t use the standard rate

There are situations where the cents-per-mile rate doesn’t apply. It partly depends on how you’ve claimed deductions for the same vehicle in the past. But in other situations, it depends on whether the vehicle is new to your business this year or if you want to claim first-year depreciation tax benefits.With many factors in play, deciding whether to use the standard mileage rate for vehicle expenses can be tricky. If you have questions about claiming these expenses for 2025, or on your 2024 tax return, reach out to your Smolin advisor for help.

Savings Bonds & Taxes: What You Need to Know
Savings Bonds & Taxes: What You Need to Know 150 150 smolinlupinco

U.S. Treasury savings bonds offer security, simplicity, and government backing but also have tax implications. Like any interest-bearing investment, understanding how they’re taxed can help you maximize your savings. 

Understanding deferred interest on Series EE Bonds

Series EE Bonds earn interest differently depending on when they were purchased. Bonds issued since May 2005 have a fixed interest rate, while those bought from May 1997 to April 2005 follow a variable market-based rate.

Paper EE Bonds (issued between 1980 and 2012) were sold at half their face value—meaning a $50 bond costs $25 and only reaches full value at maturity. Today’s electronic EE Bonds are sold at their face value, so a $100 bond costs $100, and they earn a fixed interest rate that’s set before you buy the bond. They earn that rate for the first 20 years with a possible rate adjustment for the final 10 years.

Electronic EE Bonds must be held for at least one year, and redeeming them within the first five years is subject to a penalty.

Unlike traditional interest-bearing accounts, EE Bonds don’t pay interest regularly. Instead, accrued interest is reflected in the bond’s redemption value. The U.S. Treasury provides tables that show the redemption values so you can track growth.

By default, interest isn’t taxed until the bond is redeemed, allowing for tax deferral. Bondholders may choose to report interest annually, and if so, all previously accrued but untaxed interest must be reported in that year.

There are cases when reporting interest early can be beneficial. For instance, if the bondholder has little to no other current income, it may be a wise decision to incur the income in those low or no tax years to avoid future inclusion. The same is true for bonds owned by children, though the “kiddie tax” rules may apply.

Unless you opt to report interest annually, all accrued interest is taxed when the bond is redeemed or transferred—unless it’s exchanged for a Series HH bond. EE Bonds continue earning interest even after reaching their face value, but once they hit final maturity at 30 years, interest stops accruing and must be reported (again, unless it was exchanged for an HH bond).

If you own EE bonds (paper or electronic), be sure to check their issue dates. If they’ve stopped earning interest, it might be time to redeem them and reinvest the money in a more profitable option.

Inflation-protected savings with Series I Bonds

Series I savings bonds are designed to keep pace with inflation so your money retains its purchasing power. The earnings rate combines a fixed rate, which remains constant for the bond’s lifetime, and a variable inflation rate that adjusts twice a year. New rates are announced every May 1 and November 1.

Series I bonds are issued at face value, meaning you pay the full amount upfront, and bondholders have two options for reporting interest:

  1. Defer taxation until the bond reaches final maturity, is redeemed, or is otherwise disposed of—whichever comes first.
  2. Report interest annually as it accrues rather than deferring it.

If you choose to report interest annually, the election applies to all Series I bonds you currently own as well as any future purchases and other discount-based investments, like Series EE bonds. This election is binding unless changed through a specific IRS procedure.

State and local tax exemption and education benefits

While interest earned on EE and I bonds is subject to federal income tax, it’s exempt from state and local taxes.

Additionally, if the funds are used for qualified higher education expenses, you may be able to exclude the interest from federal taxes, provided that your income falls within certain limits.

In 2025, this tax benefit begins to phase out for modified adjusted gross incomes (MAGIs) above $149,250 for joint filers and $99,500 for others (up from $145,200 and $96,800, respectively, in 2024.) The exclusion disappears entirely at MAGIs of $179,250 for joint filers and $ 114,500 for others (up from $175,200 and $111,800 in 2024).

Have questions about savings bond taxation? We’re here to help. Reach out to your Smolin advisor today.

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