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11.11.

2014
To
John and Mary
From
Aleshia Cooper

Brief Summary of Facts:


John and Mary (your clients) have two small children and are looking for ways
to help fund the childrens college education. They have heard that Series EE bonds are

CC
Lynigueka Johnson;
Rechea Delancy

a tax favored way of saving and have requested your opinion on the tax consequences.

Re
The tax
consequences Series
EE bond investments

EE bonds in their names versus the childrens names. John and Mary have indicated

They have asked your opinion regarding the relative advantages of purchasing Series

that they expect to have a high level of income in the future and that their children may
receive other income sources from future inheritances.
Issue:
Making recommendations about the taxation consequences of Series EE bond
investments for John and Mary
Law and Analysis:
According to tax laws Taxpayers may purchase and eventually redeem Series EE bonds
tax- free if they utilize the takings to pay certain college expenses for themselves, a
partner, or dependents. To qualify for the exclusion:
The bonds must be purchased after 1989 by an individual who is age 24 or older at the
time of the purchase. The bonds must be purchased by the owner and cannot be a gift
to the possessor. The gross from the bond redemption must be utilized for tuition and
fees, which are first reduced by tax-free scholarships, veterans benefits, Hope and

Taxation 1
Tel 242-356-9090
Fax 242-356-1010

Thompson Blvd, Nassau


Bahamas N 4912

Taxation1@gmail.com

11.11.2014

Memorandum to File

02

Lifetime Learning credits, and other similar measures. Married couples living together
must file a joint return to obtain the exclusion
Recommendation Analysis:
The primary advantage of purchasing bonds from Series EE in the names of the
parents is that it may be able to exclude the income interest that finally receive. They
must fit the basic requirements that the funds will be used for educational purposes and
comply with the limitation of income. As the limitation is indexed to inflation and
their future incomes are unknown, parents cannot be decided if they are entitled to the
exception. If bonds are purchased in the names of the children and are under 24 years
of age, the interest may be subject to the "child" tax. However, if the annual interest is
less than $1.900 per child and children choose to report each year there will be fewer
tax even if the children are under age 24 and no tax if the income is less than $950.
The fact that parents expect high-income means that the leverage of the bonds
along the names of the children may be more worthy. This is lawful if the annual
income is not less $1,800 per kid or children are more than 23 years previous.
The fact that children can take in other income in the future means that minors
can face significant future taxes if the bonds are purchased in their names. This is
particularly a problem if the children are under age 24 because they tax parents at all

Taxation 1
Tel 242-356-9090
Fax 242-356-1010

Thompson Blvd, Nassau


Bahamas N 4912

Taxation1@gmail.com

11.11.2014

Memorandum to File

03

income interest. If it is the case of the children probably would benefit from waiting to
report the interest when the bonds are redeemed.

Taxation 1
Tel 242-356-9090
Fax 242-356-1010

Thompson Blvd, Nassau


Bahamas N 4912

Taxation1@gmail.com