Tax-Exempt Interest

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Tax-Exempt Interest

In the United States, interest on a bond not subject to federal taxes. Generally speaking, tax-exempt interest comes from a municipal bond. It is also important to tax-efficient funds because dividends on these funds coming from tax-exempt interest are also tax free. However, tax-exempt interest is required to be reported to the IRS and may affect one in other ways, notably on eligibility for Social Security benefits.
References in periodicals archive ?
Planning for lower premiums shouldn't include shifting to municipal bonds, however, because tax exempt interest income is counted in your MAGI for this purpose.
Low Tax Exempt Interest Rates: While today's tax exempt rates are almost identical to taxable rates, historically tax-exempt rates have been, on average, 1% lower than taxable rates.
The adjusted net minimum tax for any year is the AMT for that year reduced by the amount that would be the AMT if: (1) the only adjustments were those concerning the limitations on certain deductions (such as state taxes, certain itemized deductions, the standard deduction and personal exemptions); (2) the only preferences were those dealing with depletion, tax exempt interest, and small business stock; and (3) the limit on the foreign minimum tax credit did not apply.
Based on the interest portfolio, the partnership expects to earn about $600 of tax exempt interest and about $600 of taxable interest.
First, further reductions were suggested in the benefits that property-liability insurers received from tax exempt interest and dividends and second, a stiff new minimum tax was proposed for these companies.
These discounts qualified for treatment as tax exempt interest under Code Section 103(a).