Stock Market Analysis and
Personal Finance
Mr. Bernstein
Tax Issues in Investing
November 2015
Stock Market Analysis
& Personal Finance
Mr. Bernstein
Municipal Bonds (Munis)
Bonds issued by state or local government or agencies
Interest income is typically exempt from Federal tax
Reduces interest rate for state and local gov’t projects
Example:
An individual in 38% tax bracket is indifferent between
earning 4% on a MCD bond and ~2.5% on Monmouth
County Improvement Authority:
After-tax interest on 4.0% on MCD bond = .62 x 4.0% =
2.48%
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
Municipal Bonds (Munis)
Examples of Jersey municipal debt:
http://www.nuveen.com/Home/Documents/Default.aspx?fileId=109
76 , pp 44-53: listing of holdings of Nuveen NJ Municipal Bond Fund
Revenue bonds pledge income from specific activity (see “Revenue
in bond description)
GO or General Obligations bonds are backed by full faith and credit
of issuer
Many munis are insured by third parties (ie AMBAC, FGIC: credit
enhancement)
Do munis ever default? Yes, though not common:
http://www.kiplinger.com/article/investing/T052-C000-S002-the-5-biggest-munibond-defaults.html
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
The tax deferral advantage of pension savings
“DC” (defined contribution) plans:
401k
Employer-established, contributions made pre-tax
Employer may match contributions
Investment menu is provided, typically mutual funds
Withdrawals made after retirement are taxed as income
IRA
Individual contributions are tax deductions
Relatively few restrictions on investments
Withdrawals made after retirement are taxed as income
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Stock Market Analysis
& Personal Finance
Mr. Bernstein
The tax advantage of dividends and capital gains
Since 2003, Federal tax rates on qualified dividends and capital
gains have been capped at 15%, regardless of the income tax
bracket of the individual*, which can be as high as 39.6%
currently.
“It's fair to tax a company's profits, it's not fair to double-tax by taxing the
shareholder on the same profits”. George W. Bush
* Fiscal Cliff legislation raised the cap to 23.8% for those earning over $400,000.
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