Some tax issues
- Tax code is complex
- Municipal bonds (``munis''): interest is not taxable (federal and usually state of issue)
- Treasury bonds (``T-Bonds''): interest is exempt from state and local taxes
- ordinary and capital gains/losses accounted separately
- accumulating tax-free is valuable
- it is usually beneficial to realize losses and defer gains
- ``tax timing option'' increases the value of some securities
- corporations are untaxed on all or part of dividends
- tax clienteles complicate valuation
Phil Dybvig
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Finding good strategies for tax-smart investing is difficult. Fortunately, even simple ideas can make a big difference to the investor. Most tax-smart strategies involve the delay of the realization of gains or the conversion of income into a form that is taxed at a lower rate. |
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The complexity of the tax code is one reason tax-smart investing is so challenging. For example, gains in an option position may be realized automatically without a sale, even if gains in an ecomonomically similar equity investment would not. |