When the bond pays interest, you will receive the full semi-annual amount
That is the problem. I am being taxed on the full semi-annual amount.
What I believe is I should only be taxed on the "full semi-annual amount MINUS accrued interest I paid ".
Think about an extreme case when someone buys a bond which will pay coupon next day. Should the buyer be responsible for the tax of the full coupon interest? I think NO.
