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.”
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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.
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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.
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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.
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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.