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Author: ljkutten Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: compare real tax rate versus marginal rate Date: 12/31/2000 1:56 PM
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When looking at municipal bonds always compare your REAL rate to your marginal rate.

By real rate, I mean the real amount you are paying in taxes.

Take this scenario.

1. Your net income is $130,000.

2. According to the tax table, your marginal rate is 31%.

3. You will pay $23,965 in tax on the first $105,950. This is a REAL tax rate of 22.6%.

4. On the next $24,050 you will pay $7,455.50 in tax.

5. Your total tax bill is $31,420 on a $130,000 income. The total percentage of tax paid is 24.16%.

Why is this important? Because you must sit down and calculate which is better for you, a taxable investment versus a non-taxable investment. Using some Vanguard figures, at a 31% tax rate, a non taxable money market fund is a better than a taxable. At a 24.16%, tax rate, the taxable beats the non-taxable.

I have not computed state income taxes in the above as my state does not have an income tax.

Enjoy.

LJK
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