This is a follow-up to a question asked previously on this site. Taxpayer owns $98,000 worth of Series EE savings bonds, which will mature in July
2022. Because of the 4% interest they earn, taxpayer does not plan to cash them in before maturity and also does not plan to use them for educational purposes. The accumulated interest to date is roughly $63,000. No bonds have been cashed in and no taxes have ever been paid on them (cash method of reporting).Based on the responses given here, the taxpayer has an option to switch to an accrual reporting method and report the $63,000 in accumulated interest on his next tax return, and then report annual interest each year until final maturity in 2022. Since that will be a big chunk of income to report at one time, what does he have to do to insure he won't be hit with a penalty for under-withholding? Taxpayer has never had to file estimated taxes and would not otherwise be in a position where he might incur a penalty. Does he need to file estimated taxes prior to filing his 2012 return for this one-time major income spike? Suppose he does not make the decision to change the accounting method until just before he files the 2012 return?