It’s tax time again, so while you may be finished preparing your taxes, or not, you may be waiting for your tax refund check to land in your mailbox. For high tax bracket individuals, muni bonds may be a type of investment you want to look into to help shelter you from next year’s tax storm.
High-interest Investments
High-interest investments bring you a better rate of return on your money, but it can also trigger payments to Uncle Sam. That’s right, if you’re investing your money in taxable bonds (including muni bonds), checking or savings accounts, certificates of deposit (CDs) and money market funds that are paying high interest rates, then you may be increasing your tax liability right along with your income. The situation may get worse after the health care reform is fully in place.
Make the Move to Tax-free Bonds
Muni bonds may be just what you’re looking for to help you shelter the storm because you can opt to invest your money in the tax-free version of muni bonds. Muni bonds performed very well in 2009, even in the economic downturn in the economy. In 2010, the muni bond market is a little worse for wear than it was last year, especially when you compare them to their taxable investment counterparts. Once you hit the high tax-bracket, however, muni bonds can create a tax-exempt situation for your investment income. With tax-exempt status and high yields, mini bonds do come with some risk as well. It is possible for bond issuers to default on their payments. While the risk of this occurring is low, it is possible and something muni bond investors need to be aware of.
