Cents and Sensibility
Cents and Sensibility
QUESTION: "I've heard about tax-free bonds but don't know much about them. Can you explain them to me?" Muni bonds offer tax
break and help communityANSWER: Municipal bonds are issued by cities and states to finance public projects like construction of schools, roads, hospitals or bridges.
When you buy a municipal bond, along with the satisfaction of knowing you helped make these improvements possible, you receive a fixed interest payment every six months.
In addition, all the interest you receive from municipal bonds is free from federal income tax.
If you're a resident of the state where the bond is issued, the interest is free from state income tax as well.
Because of the tax advantages they offer, municipal bonds provide significantly more after-tax income than comparable taxable investments paying higher interest rates.
Be careful not to focus strictly on the pre-tax return of your investments.
Consult with your investment professional to determine if municipal bonds would be a good fit for your portfolio.
Mutual fund capital gains
Speaking of taxes, don't forget mutual fund capital gains season will be here before you know itYour mutual funds could realize significant capital gains even though their performance may have been modest this year.
If you have investments that posted a loss this year, you could possibly use the loss to offset capital gains on your mutual funds.
A little tax management today may help reduce the potential impact of capital gains in November or December, but an appropriate tax strategy depends on your situation.
So don't procrastinate, make plans to contact your tax adviser soon.
Guy Steele is a financial planner and head
of the Pali Palms office of Edward Jones. Send
planning and investing questions to him at 970
N. Kalaheo Ave., Suite C-210, Kailua, HI, 96734,
or by email at: gsteele2@pixi.com