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What are the Tax Implications of Owning Bonds?
Some bonds receive preferential tax treatment. The interest you receive is fully taxable, unless the bonds are issued by municipalities, states, federal governments, or corporations with special tax-exempt statuses (such as school districts, infrastructure facilities, hospitals, and so on).
The first very general rule of thumb – if you reside in a certain municipality and buy bonds of that municipality, the interest is not taxable.
The second rule is very easy to remember: feds do not tax states, and states do not tax feds. In other words, if you own U.S. Treasuries, you will not pay the state tax on the interest that you earn. If you own state bonds, you will not pay federal taxes.
Depending on your income tax bracket, it might or might not be beneficial for you to buy tax exempt bonds. Careful calculations are required in each individual case, wherein an investor can weigh the yield of the muni bond against what’s called the tax-equivalent yield, or what yield a taxable instrument would have to pay to equal it post-taxes.
In general, municipal bonds are considered to be safer than corporate bonds. It is also obvious that you do not want to buy tax exempt bonds in your retirement accounts, since they are already tax exempt.
What are the Tax Benefits of Annuities?
How Does a 401(k) Compare With Other Retirement Plans?
What Types of Bonds Are There?
What does notional value mean?
Notional Value is used in futures and options to describe the total value of the principal of a contract or transaction, especially when either none or only part of that value..
What is short interest?
Short interest is a term used to describe how many short positions are open for a given security or market at a given time
What is the Debt-to-Equity Ratio?
The debt-to-equity ratio is an important financial metric that provides insight into a company's financial health and risk profile.
What is Account Activity?
Account activity is any credit or debit activity in a checking or savings account, or dividends in an investment account
What are Large Cap Mutual Funds?
Large Cap mutual funds primarily invest in companies with the highest market capitalizations
Should I Use Double or Triple ETFs?
Double or triple ETFs can be very volatile investments, so an investor should be aware of the risks involved
How do I get IPO shares?
Another way to participate in IPOs is to pick up shares of mutual funds and ETFs that invest in them for you
What is the Difference Between a Will and a Trust?
A primary difference between a will and a trust is that a will goes into effect once you die, but a trust goes into effect when you create it
What is market research?
Market research is the process of evaluating a possible opportunity for entering into a market with a new product
What is a leading indicator?
Leading indicators are economic or price data which have some degree of correlation with a movement in the market