Tax-Exempt Interest

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.
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For example, under the expanded-income concept, returns without worldwide income tax were much more likely (87.0 percent) than taxable returns (27.3 percent) to have tax-exempt interest, and when they did, the average amount for nontaxable returns ($234,576) was much higher than the average amount for all taxable returns ($28,794) (Figure K).
However, tax-exempt interest from municipal bonds is not subject to the additional tax, so conservative investors looking to maximize after-tax return should consider increasing exposure to municipal bonds or municipal bond funds.
The taxes are based on combined income, which is a taxpayer's adjusted gross income, plus any tax-exempt interest (such as interest on mutual bonds) and half of her Social Security benefit.
The amount of the tax-exempt interest from the bonds that you report on your tax return is reduced by the amortized amount.
Its Joint Proxy/Prospectus noted before the reorganisation closing date that the fund will declare a distribution that will have the effect of distributing all of its investment company taxable income, all of its net capital gains and all of its net tax-exempt interest income, if any, all till the closing date.
IRS officials say parents can elect to include their children's gross income, tax-exempt interest earnings and nontaxable Social Security income in the MAGI total.
But during the relevant period, it sometimes took a month or more for the firm to cover municipal short positions; some of those positions took more than a year to cover.The firm also failed to let customers know they were not receiving tax-exempt interest when the firm was short municipal securities.
Example 1: A complex trust has $120,000 of dividend income, $180,000 of tax-exempt interest, and $20,000 of tax preparation fees.
Over the life of the seven-year loan, using some reasonable assumptions about advance rates, the interest savings to the Borrower on a tax-exempt interest rate might be over $1 million.
Taxpayers must report all tax-exempt interest on Form 1040 Schedule B, Interest and Ordinary Dividends, although the amounts are not included in taxable income.
The finance ministry has issued two new bonds for public and private social insurance funds at a tax-exempt interest rate of 9% at a total value of EGP 14.2bn, Minister Hany Kadry Dimian announced in a Wednesday statement.