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Financial Planning / Tax Strategies


Subject:  Re: 5% Capital Gains Tax Rate Date:  12/29/2004  12:49 AM
Author:  Mark0Young Number:  75037 of 127616

Yes, generally "tax exempt" money market funds and "tax exempt" (municipal) bond funds are more appealing to those in higher tax brackets because they are left with more after taxes than in a fully taxable money market account or fully taxable bond fund.

But for those of us in the middle and lower marginal tax rates don't save as much by the "tax exempt" status so usually we in the middle and lower marginal tax rates are better off with a fully taxable money market account or a fully taxable bond fund.

There have been times when the numbers didn't quite work that way, but those tend to be relatively brief times (a couple years, for example).

Generally, when considering long-term capital gains, think of its impact after all of one's ordinary income taxes, so one would consider ordinary sources of income, then consider interest income (the discussion of money market accounts, money market funds, bonds or bond funds, whether these should be "municipal" for tax-free interest or if they should be fully taxable), and last consider the impact of capital gains, but if you are selling enough long-term capital gains stock some of those long-term capital gains may end up being taxed at 15%.
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