Municiple Bonds

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tips Four tax incentives of municipal bonds In today's tax environment, nothing is certain. However, as things stand now, high-income taxpayers may continue to value municipal bonds ("munis") and muni bond funds. Just consider these four tax incentives. Interest income from munis is exempt from federal income tax. This is a major benefit to taxpayers in the top tax brackets, especially when compared to taxable investments. For example, to someone in the top 39.6 percent tax bracket, a AAA-rated muni earning 4 percent is preferable to a taxable corporate bond earning 5 percent. Interest income from munis is exempt from state income tax if issued by a municipality or other authority within your state. This is a significant "double tax break" for residents of high-tax states. Interest income from munis doesn't count toward your adjusted gross income (AGI) for tax return purposes. This could increase certain tax benefits, such as deductions for medical expenses or charitable gifts, or avoid cutbacks. Interest income from munis doesn't count in the tax calculation of the net investment income tax (NII). Currently, a 3.8 percent surcharge applies to the lower amount of your NII (which includes most investment income items) or modified adjusted gross income (MAGI) above $200,000 for single filers and $250,000 for joint filers. While these tax incentives exist, this should not lead you to believe munis are completely tax-free. For example, if you buy certain munis, called "private activity bonds," it may create alternative minimum tax (AMT) complications. You will owe capital gains tax when you sell munis at a profit. Also, remember that there's more to investing than just taxes. Take all the relevant financial factors into account, including the suitability of munis in your portfolio. The rules related to munis are complex and can change. Please call us if you have any questions. 2016 Tax Extension Deadlines are approaching. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can send us all your information through our online secure portal and do your taxes from the comfort of your home or office or come see us at our office. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000.