(as of January 3, 2023)
According to a 2021 study conducted by the IRS, 93% of people surveyed agree it’s every American’s civic duty to pay their fair share of taxes. That doesn’t mean they look forward to tax season. It’s time-consuming, complex, and in some cases costly. Even Albert Einstein once said, “the hardest thing in the world to understand is income tax.”
Individual investors and family offices and their advisors who aren’t familiar with the inner workings of the municipal bond market may not be aware of the state-by-state tax benefits and consequences. And if their muni bond portfolios aren’t structured appropriately, they may be missing opportunities.
Consider that investors who live in high-tax states, such as California, New Jersey, or New York, benefit from municipal bonds issued by their home state because they are exempt from state income taxes. The higher in-state demand for these bonds means they typically trade at a tighter spread.
For investors who live in states with no income tax, such as Florida or Texas, there is no incentive to own bonds in their home state, so a general market / non-state-specific municipal bond portfolio typically is a better option. Investors in these states also are better off not owning bonds from high-tax states given that they would be sacrificing yield unnecessarily.
As a municipal bond specialist firm, Riverbend Capital Advisors is well acquainted with state-by-state income tax rates and well-positioned to structure client portfolios appropriately.