Re: savings bond?
It's been a coupld of years since I cashed one in, but the penalty I believe is like the last three months worth of interest if you cash it in before you have had it for 5 years. You do not owe local or state income taxes on savings bond interest when you cash it, but you will owe federal taxes. Federal taxes are due on any income not matter how tiny--that's why deductions are so important.
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