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Tax Issues
“When choosing investments, focus on the after-tax
return (what you have left after paying taxes), not just
the amount of tax you avoid.”
- Nancy Lloyd, author of
Simple Money Solutions
When it comes to investing and tax planning, it’s not
a matter of winning or losing; it’s how you play the
game. The following is a list of tax considerations associated
with investing in bonds.
Interest Income
- The interest paid from bonds is taxed at your ordinary
income tax rate.
- The interest from U.S. Treasury bonds, bills, and notes
is exempt from state and local taxes.
- The interest from Municipal Bonds is generally exempt
from federal taxes and from state and local taxes for residents
of the state where the bond was issued.
Capital Gains
- Since bond prices fluctuate, you may actually resell your
bond for more than you paid for it; in this case, you will
have to pay capital gains on your profit margin.
- The short term capital gains rate--which is the same as
your ordinary income tax rate--is applied to bond investments
held for less than 12 months.
- The long-term capital gains rate--which will vary based on your income bracket --is applied to bond
investments held for longer than 12 months.
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