in order for you to be indifferent between the after tax returns on a corporate bond paying 8.5% and a tax-exempt municipal bond paying 6.12%, what would your tax bracket need to be?

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24-10-2022
Business

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in order for you to be indifferent between the after tax returns on a corporate bond paying 8.5% and a tax-exempt municipal bond paying 6.12%, what would your tax bracket need to be?

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RupaBera RupaBera · Answer 1 · 2022-10-28T13:46:31-04:00

The two bonds must have an equal after-tax rate of return. Municipal bonds are exempt from federal income tax, hence we need: 8.5% * (tax rate - 1) = 6.12%

What is the tax rate on company bonds?

The interest rate on bonds will be the same as the interest rate on other types of income, including wages or self-employment income. For instance, if you are in the 37% tax bracket, you will pay a 37% federal income tax rate on your bond interest. The tax rates for 2022 and 2021 are listed below.

Corporate bonds are they tax-free?

Taxes are levied on corporate bonds based on the interest collected, capital gains, and issue discounts. At both the federal and state levels, taxes are levied on interest that is earned, which is normally paid every six months. Taxes on capital gains are only owed upon bond sale.

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