Regarding Edik's U.S. Series EE savings bond, how should he treat the interest income?

The interest income on U.S. Series EE savings bonds is treated as taxable income and is reported when the bond matures or is redeemed. This means that Edik should include the interest income in his tax return only once, at the point of maturity or when he cashes in the bond.

This method of reporting is specific to Series EE bonds, as they accrue interest over time and do not pay it out periodically. Instead, the interest builds up and is compounded within the bond’s value until it reaches maturity. It is distinct from other investment types where interest or dividends may be reported annually.

The bondholder wants to ensure compliance with tax regulations while also maximizing the tax advantages that come with holding such savings instruments. The reporting happens at one definitive moment, which simplifies the process for the taxpayer.

This is why the other treatments, such as reporting the interest periodically, not reporting it at all, or only reporting it upon sale, do not align with the proper tax treatment of Series EE savings bond interest. These alternatives do not reflect the nature of how this type of bond accrues and defers interest income until maturity.