If a US resident invests in a US based bond with a tenure of 3 years which assures of a return 300 basis points over the LIBOR rate and assured addition of 10% bonus every year, payable at the end of tenure (36th month along with principal). How will it be taxed? For the 10% bonus addition will the investor be taxed even if it is not realized. Please remember the bonus addition is subject to certain risk factors, which may delay or result in non payment of bonus.
If you are an individual, then you are on the cash basis of accounting. Therefore, you will be taxed on the cash you receive on the bond when you receive it.
I agree with Attorney Givner.
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I agree with Bruce. You are taxed on a cash basis. It is income when you receive the money.
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