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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.

 What is a Bond?

 Types of Bonds

 

 Bond Terminology

 

 Costs Associated with Bonds

 

 Tax Issues

 

 

 

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