Author Topic: can you explain tax free municipal bonds...  (Read 1859 times)

FuckRx

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can you explain tax free municipal bonds...
« on: March 09, 2014, 11:08:18 AM »
can you explain municpal bonds and how they are tax free? as part of my method of protecting myself from higher taxes can i invest in municipal bonds and collect the yields without getting taxed on it? i suppose another question would be how is it not taxed, isn't it income? and also if someone can tell me how the yields are calculated?
one of my strategies is to build up my muni bonds so i can get some good passive income from it. whether correct or not i don't worry too much about the actual value going up because i don't expect muni bonds to really go up in value.

East River Guide

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Re: can you explain tax free municipal bonds...
« Reply #1 on: March 09, 2014, 11:53:03 AM »
Simply exempt from tax 

Tax rules:  http://www.irs.gov/pub/irs-tege/teb_phase_1_course_11204_-3module_b.pdf

Rough guideline to compare tax exempt rate to taxable rate is to divide the tax exempt rate by 1 minus your marginal tax rate.   

I'm sure there is lots written out there already on this. 

xocotl

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Re: can you explain tax free municipal bonds...
« Reply #2 on: March 09, 2014, 11:59:36 AM »
For federal income taxes in the US they are reported on line 8b of Form 1040, instead of line 8a like the rest of your interest income. This value is not included in the calculation for total income (line 22), and so you don't end up paying any tax on it.

As far as state income taxes, that will depend on your state. Generally municipal bond interest is only exempt from state income taxes if the bond was issued by an entity in your state.

foobar

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Re: can you explain tax free municipal bonds...
« Reply #3 on: March 09, 2014, 05:05:52 PM »
States can't tax federal income and feds can't tax state income. It works out for the both parties since they can turn around and offer lower rates.

Wether it counts as income depends on what your looking at. For some things like ACA or college financial aid it does. For some of the other tax credits, it doesn't

can you explain municpal bonds and how they are tax free? as part of my method of protecting myself from higher taxes can i invest in municipal bonds and collect the yields without getting taxed on it? i suppose another question would be how is it not taxed, isn't it income? and also if someone can tell me how the yields are calculated?
one of my strategies is to build up my muni bonds so i can get some good passive income from it. whether correct or not i don't worry too much about the actual value going up because i don't expect muni bonds to really go up in value.