How to Earn 5% Tax Free on Your Money

New York Tax Free Municipal Bond

We are in the midst of tax season right now, and many investors are looking at the interest and dividends showing up on their tax returns. It would be great if you could convert that taxable income into non-taxable income. The best way to get tax free interest is from municipal bonds.

You have a couple options: one is to owns the bonds directly and the other is by purchasing municipal bond closed end funds, often referred to as tax-free CEFs or tax-free stocks. These CEFs own municipal bonds that pay interest which is exempt from Federal income taxes and may be exempt from state income taxes if issued in the state you live in or issued by one of the US territories, such as Puerto Rico, the Virgin Islands, or Guam. Municipal bonds are usually issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, bridges, and water and power departments. WallStreetNewsNetwork.com has list of over 100 tax-free income CEFs, and more than 85 with yields more than than 5%.

The advantages of these CEFs are numerous. Almost all of them pay dividends on a monthly basis, whereas, if you by an individual bond, the interest is paid semi-annually. CEFs have no minimum investment, whereas municipal bonds are sold in $5,000 denominations and many brokers have minimum purchase requirements of $15,000 to $25,000. You also have better liquidity with CEFs as prices are quoted real time and quotes are immediately available on the Internet, unlike individual bonds. In addition, CEFs provide diversification by owning many bonds in the portfolio. One other advantage is that you can often buy many of these CEFs at a discount from net asset value.

The Nuveen Insured Municipal Opportunity Fund (NIO) pays a generous yield of 6.0% and is selling at a 7.9% discount. The Net Asset Value, also known as the NAV, is the intrinsic value of the shares if the entire fund were liquidated and all the funds distributed among the shareholders. The leverage ratio is 36.84%, about average of the ratios of all the leveraged muni CEFs. The management fee is 0.63%.

The Dreyfus Strategic Municipal Bond Fund (DSM), founded in 1989, also yields 6.0%, and is selling for a 4.3% discount to Net Asset Value. The fund does utilize some leveraging, currently 31.27%, which is a bit lower than many other tax free CEFs. The advisor fee is 0.50%.

For New Yorker, there is the Eaton Vance Insured New York Municipal Bond Fund (ENX) yielding 5.4%, and was founded in 2001. It trades at a 7.2% discount to NAV. Leverage is 38.16%.

California residents may consider the Invesco Van Kampen California Value Municipal Income Fund (VCV), with a payout rate of 5.9%. It has a discount to NAV of 4.2%, with leverage of 35.57%. The company was founded in 1992.

Here are some issues to watch out for before investing in tax free CEFs:
* a highly leveraged portfolio
* high management/advisor fees
* trading at a premium to net asset value
* bonds which are subject to the Alternative Minimum Tax
* low quality bonds in the portfolio

But there is one other significant risk: an increase in interest rates, which will cause the bonds to drop in price and therefore causing the CEFs to fall also. Over the last several years, rates have remained low. Interest rates will rise eventually, but when rates rise is the big unknown.

A list of tax free income closed end funds, which includes yields, discounts and premiums, leverage, management fees, date founded, and other information, is available at WallStreetNewsNetwork.com.

Disclosure: Author did not own any of the above at the time the article was written.

By Stockerblog.com

My Favorite Books on Bonds

If you have ever considered investing in bonds, or maybe you already own some bonds but just want to learn more about this investment, whether treasury bonds, corporate bonds, or municipal bonds, you may want to check out a few of these books. These are some of my favorites.

The Bond Book, Third Edition: Everything Investors Need to Know About Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds, and More by Annette Thau

Bonds: The Unbeaten Path to Secure Investment Growth by Hildy Richelson and Stan Richelson

Why Bother With Bonds: A Guide To Build All-Weather Portfolio Including CDs, Bonds, and Bond Funds--Even During Low Interest Rates by Rick Van Ness and Carl Richards

The Handbook of Fixed Income Securities, Eighth Edition by Frank J. Fabozzi and Steven V. Mann

Get Tax Free Income from Municipal Bonds: High Yield Tax Exempt Interest Full Disclosure: I wrote this book

Should You Invest in Municipal Bonds?

Since the Federal Reserve Board has (again) decided not to raise interest rates, prices on municipal bonds have remained steady. But should you even consider Municipal Bonds in the first place?

Municipal bonds are basically loans from investors to state and local governments, and local government agencies. The biggest advantage of muni bonds is the interest that is paid to investors is exempt from Federal taxes, and could also be exempt from state taxes, depending on the state you live in and the type of bond that you buy. So if you are in a fairly high tax bracket, you should consider allocating a portion of your portfolio to tax free municipal bonds.

You have a couple options in terms of your investment vehicles. First you can buy municipal bonds directly. Bonds are in $5,000 denominations, but most firms have a minimum order size ranging from $15,000 to $25,000. Depending on the size of you portfolio, this could limit the amount of diversification you could have in muni bonds. However, the big advantage is that upon maturity, you will receive the par value back.

So if you buy a $5,000 bond, and interest rates rise, the value of your bond will drop, but eventually at maturity, you will get your $5,000 back.

The other option is by investing in municipal bond closed end funds, also known as CEFs. These funds own a diversified portfolio of munis. Yet, they are subject to interest rate risk. But there are a few other  advantages to the CEFs besides the diversification. You can invest in much smaller amounts, as low as $1,000. Plus, they are much more liquid and trade during the day while the stock market is open.

Of course, you will want to go with the higher rated bonds in order to avoid the risk of default that we have seen recently in places such as Detroit, Michigan and Stockton, California.

 A list of municipal bond closed end funds is available at WallStreetNewsNetwork.com. 

How to Get Tax Free Income in Your Portfolio

It's tax season again. Have you noticed a lot of dividends and interest showing up on your tax return? Wouldn't it be nice if you could convert that taxable income into non-taxable income? The one primary way of getting tax free interest is through municipal bonds.

One option is to owns the bonds directly and the other is by purchasing municipal bond closed end funds, sometimes referred to as tax-free CEFs or tax-free stocks. These closed end funds own muni bonds that pay interest that is exempt from Federal income taxes and may be exempt from state income taxes if issued in the state you live in or issued by one of the US territories, such as Puerto Rico, the Virgin Islands, or Guam. Municipal bonds are usually issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, bridges, and water and power departments. WallStreetNewsNetwork.com has list of over 100 tax-free income CEFs, and more than 80 paying out yields more than than 5%.

There are many advantages besides the non-taxable income of these CEFs. Almost all of them pay dividends on a monthly basis, whereas, if you by an individual bond, the interest is paid semi-annually. CEFs have no minimum investment, whereas municipal bonds are sold in $5,000 denominations and many brokers have minimum purchase requirements of $15,000 to $25,000. You also have better liquidity with CEFs as prices are quoted real time and quotes are immediately available on the Internet, unlike individual bonds. In addition, CEFs provide diversification by owning many bonds in the portfolio.

One tax free CEF with a long term track record is the Dreyfus Strategic Municipal Bond Fund (DSM), which was founded in 1989. It currently yields 6.1%, and is selling for a 8.2% discount to Net Asset Value. The Net Asset Value, also known as the NAV, is the intrinsic value of the shares if the entire fund were liquidated and all the funds distributed among the shareholders. The fund does utilize some leveraging, currently 34%, which is somewhat lower than many other tax free CEFs. The advisor fee is 0.50%.

If you live in New York, you can consider the PIMCO New York Municipal Income Fund (PNF), founded in 2001. The fund yields 5.9%, and trades at a 3.9% discount to NAV. Leverage is 37.7%, and the advisor fee is 0.65%.

California residents may consider the Invesco Van Kampen California Value Municipal Income Fund (VCV), with a payout rate of 6%. It has a discount to NAV of 4%, with leverage of 35%. The company, founded in 1992, charges an advisor fee of 0.88%.

Here are some issues to watch out for before investing in tax free CEFs:
* a highly leveraged portfolio
* high management/advisor fees
* trading at a premium to net asset value
* bonds which are subject to the Alternative Minimum Tax
* low quality bonds in the portfolio

But there is one major risk, which is a rise in interest rates, which will cause the bonds to drop in price and therefore causing the CEFs to fall also. It is interesting to note that I have been mentioning that risk for several years, yet rates continue to remain low. Interest rates will go up eventually, it's just a matter of when.

A list of tax free income closed end funds, which includes yields, discounts and premiums, leverage, management fees, date founded, and other information, is available at WallStreetNewsNetwork.com.

Disclosure: Author did not own any of the above at the time the article was written.

By Stockerblog.com

Where You Can Buy Municipal Bonds Online

Municipal bonds are debt obligations issued by states, counties, cities, and other governmental agencies. The primary advantage to investing in municipal bonds is the tax free interest. The interest is exempt from Federal taxes and if you live in the state in which the bonds were issued, the interest is exempt from state taxes also (with a few states that are exceptions). Plus, any muni bonds issued by the Governments of Puerto Rico, Guam, the Virgin Islands, or the Northern Mariana Islands, or bonds issued after October 16, 2004 by American Samoa are also exempt from all state income taxes, according to Federal law. If you live in New York City and own New York State bonds, the interest is exempt from city, state, and Federal income taxes .

The following companies allow you to view their municipal bond offerings online without having to log in or even open an account, until you are ready to buy.

ZionsDirect

FMSbonds

Fidelity

Stoever Glass

A great resource for information about municipal bonds is MunicipalBonds.com, which includes a lookup by CUSIP number.

100 Ways to Get 5% Tax Free

Municipal bondholders breathed a sigh of relief when the details of the Fiscal Cliff Bill were released. There were concerns that the tax free status of municipal bonds would be affected, but for now, the tax free status is preserved. The non-taxable feature means that states and local governments can borrow money at lower rates than corporations. Taking away this benefit would mean that states and municipalities could be stuck competing with the debt of companies, paying higher rates and putting them more in jeopardy of going bankrupt. Municipalities are in severe financial shape as it is, and taxing muni interest would be the last straw.

This news, plus the goal of the government to keep interest rates low for a while longer, is good news for investors in municipal bonds and tax-free closed end funds. The biggest risk is if interest rates rise significantly, the price of munis and muni CEFs will tank.

Investors who are looking for tax free income may want to consider the municipal bond closed end funds, sometimes referred to as tax-free stocks. There are many advantages besides the tax free income feature to these CEFs. Almost all of them pay dividends monthly, whereas, if you by an individual bond, the interest is paid semi-annually. CEFs have no minimum investment, whereas municipal bonds are sold in $5,000 denominations and many brokers have minimum purchases ranging from $15,000 to $25,000. You also have better liquidity with CEFs as prices are quoted real time and quotes are immediately available on the Internet. In addition, CEFs provide diversification through a group of bonds in the portfolio.

Municipal bonds pay interest that is exempt from Federal taxes and may be exempt from state taxes if issued in the state you live in or issued by one of the US territories, such as Puerto Rico, the Virgin Islands, or Guam. Munis are generally issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, bridges, and water and power departments. WallStreetNewsNetwork.com just recently updated its list of over 150 tax-free income CEFs, and more than 100 sporting yields greater than 5%.

One example, appropriate for New York residents, is Nuveen New York Investment Quality Municipal Fund (NQN) which has a goal of current income exempt from regular Federal and New York State and City income tax, and pays a decent yield of 5.3%. However, it does use leverage, to the tune of about 37%, to achieve its high yield. The fund trades at about a 0.7% discount to net asset value, also referred to NAV. The management fee of 0.61% is below the overall average of all tax free CEFs. It has been paying dividends since 1990. A very small portion of the bonds in the portfolio are subject to the alternative minimum tax, also referred to as AMT.

California residents might want to take a look at the Nuveen California Municipal Value Fund (NCA), which doesn't use any leverage to achieve its 4.5% yield, free of Federal and California state income taxes. It currently trades at an 0.8% discount to NAV, and carries a reasonable 0.54% management fee. The CEF, which has been around since 1987, has a little over 10% of its portfolio in AMT bonds.

For a CEF that is diversified nationwide, there is the Federated Premier Intermediate Municipal Income Fund (FPT), which seeks to provide current income exempt from federal income tax, including AMT. The fund yields 4.9% and has no AMT bonds in the portfolio. It is trading at a very slight 0.7% premium to net asset value. Leverage is quite high at 29% but the management fee is a reasonable 0.55%. Income has been paid since 2002.

The issues to watch out for with tax free CEFs:
* high leverage
* high management fees
* trading at a premium to NAV
* bonds in the portfolio that may be subject to the Alternative Minimum Tax
* quality of bonds in the portfolio

For a list of tax free income closed end funds, which includes yields, discounts and premiums, leverage, management fees, date founded, and other information, go to WallStreetNewsNetwork.com.

Disclosure: Author did not own any of the above at the time the article was written.

By Stockerblog.com

Start the New Year with Tax Free Income

What better way to start the new year than with tax free income. Now is a great time to look at your portfolio and consider moving some of the funds you have in a regular bank account (making less than 1% interest, fully taxable) to either municipal bonds or 'tax free stocks'.

Tax free stocks are technically closed end funds or CEFs that own municipal bonds which pay tax free interest. There are risks of course like any investment, such as the potential increase in interest rates, which would cause the price of the shares to drop. In addition, many CEFs use leverage to obtain higher yields.

But there are many advantages besides the tax free income feature. Almost all of these CEFs pay dividends monthly, whereas, if you by an individual bond, the interest is paid semi-annually. CEFs have no minimum investment, whereas bonds are sold in $5,000 denominations and many brokers have minimum purchases ranging from $15,000 to $25,000. You also have better liquidity with CEFs as prices are quoted real time and quotes are immediately available on the Internet. CEFs provide diversification through a group of bonds in the portfolio.

Municipal bonds pay interest that is exempt from Federal taxes and may be exempt from state taxes if issued in the state you live in or issued by one of the US territories, such as Puerto Rico, the Virgin Islands, or Guam. Munis are generally issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, bridges, and water and power departments.WallStreetNewsNetwork.com just recently updated over 150 of these tax-free income CEFs, and more than 100 providing yields in excess of 5%.

One example, appropriate for New York residents, is Nuveen New York Investment Quality Municipal Fund Inc. (NQN) which seeks to provide current income exempt from regular Federal and New York State and City income tax, and pays a fairly high yield of 6.2%. However, it does use leverage, to the tune of 38%, to achieve its high yield. The fund trades at about a 3% discount to net asset value, also referred to NAV, at the time of writing. The management fee of 0.68% is below the overall average of all tax free CEFs. It has been paying dividends since 1990. Slightly less than 10% of the bonds in the portfolio are subject to the alternative minimum tax, also referred to as AMT.

California residents might want to take a look at the Nuveen California Municipal Value Fund Inc. (NCA), which doesn't use any leverage to achieve its 5.0% yield, free of Federal and state income taxes. It currently trades at an 8.3% discount to NAV, and carries a reasonable 0.57% management fee. The CEF, which has been around since 1987, has about 8.5% of its portfolio in AMT bonds.

For a CEF that is diversified nationwide, there is the Federated Premier Intermediate Municipal Income Fund (FPT), which seeks to provide current income exempt from federal income tax, including AMT. The fund yields 5.6% and has no AMT bonds in the portfolio. It is trading at a 1.9% discount to net asset value. Leverage is quite high at 40% but the management fee is a reasonable 0.46%. Income has been paid since 2002.

Another option is the Western Asset Municipal Partners Fund Inc. (MNP), yielding 5.2%, and trading at a 5.6% discount to NAV. Leverage is at 37%, and the CEF carries a management fee of 0.82%, slightly above the average. The CEF has been around since 1992.

The issues to watch out for with tax free CEFs:
* high leverage
* high management fees
* trading at a premium to NAV
* bonds in the portfolio that may be subject to the Alternative Minimum Tax
* quality of bonds in the portfolio

For a list of tax free income closed end funds, which includes yields, discounts and premiums, leverage, management fees, date founded, and other information, go to WallStreetNewsNetwork.com.

Disclosure: Author did not own any of the above at the time the article was written.

By Stockerblog.com

Thinking About Year End Tax Issues? How About Tax Free CEFs?

Tax free stocks are technically closed end funds or CEFs that own municipal bonds which pay tax free interest. There are risks of course like any investment, such as a potential (or in my opinion certain) rise in interest rates, which would cause the price of the shares to drop. Plus many CEFs use leverage to obtain higher yields.

But there are many advantages besides that tax free income feature. Almost all of these CEFs pay dividends monthly, whereas, if you by an individual bond, the interest is paid semi-annually. CEFs have no minimum investment, whereas bonds are sold in $5,000 denominations and many brokers have minimum purchases ranging from $15,000 to $25,000. You also have better liquidity with CEFs as prices are quoted real time and quotes are immediately available on the Internet. CEFs provide diversification through a group of bonds in the portfolio.

Municipal bonds pay interest that is exempt from Federal taxes and may be exempt from state taxes if issued in the state you live in or issued by one of the US territories, such as Puerto Rico, the Virgin Islands, or Guam. Munis are generally issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, bridges, and water and power departments.WallStreetNewsNetwork.com just recently updated over 150 of these tax-free income CEFs, and more than 100 providing yields in excess of 5%.

One example, appropriate for New York residents, is Nuveen New York Investment Quality Municipal Fund Inc. (NQN) which seeks to provide current income exempt from regular Federal and New York State and City income tax, and pays a fairly high yield of 6.2%. However, it does use leverage, to the tune of 38%, to achieve its high yield. The fund trades at about a 3% discount to net asset value, also referred to NAV, at the time of writing. The management fee of 0.68% is below the overall average of all tax free CEFs. It has been paying dividends since 1990. Slightly less than 10% of the bonds in the portfolio are subject to the alternative minimum tax, also referred to as AMT.

California residents might want to take a look at the Nuveen California Municipal Value Fund Inc. (NCA), which doesn't use any leverage to achieve its 5.0% yield, free of Federal and state income taxes. It currently trades at an 8.3% discount to NAV, and carries a reasonable 0.57% management fee. The CEF, which has been around since 1987, has about 8.5% of its portfolio in AMT bonds.

For a CEF that is diversified nationwide, there is the Federated Premier Intermediate Municipal Income Fund (FPT), which seeks to provide current income exempt from federal income tax, including AMT. The fund yields 5.6% and has no AMT bonds in the portfolio. It is trading at a 1.9% discount to net asset value. Leverage is quite high at 40% but the management fee is a reasonable 0.46%. Income has been paid since 2002.

Another option is the Western Asset Municipal Partners Fund Inc. (MNP), yielding 5.2%, and trading at a 5.6% discount to NAV. Leverage is at 37%, and the CEF carries a management fee of 0.82%, slightly above the average. The CEF has been around since 1992.

The issues to watch out for with tax free CEFs:
* high leverage
* high management fees
* trading at a premium to NAV
* bonds in the portfolio that may be subject to the Alternative Minimum Tax
* quality of bonds in the portfolio

For a list of tax free income closed end funds, which includes yields, discounts and premiums, leverage, management fees, date founded, and other information, go to WallStreetNewsNetwork.com.

Disclosure: Author did not own any of the above at the time the article was written.

By Stockerblog.com

Stocks that Pay Tax Free Dividends

Here are your choices for income investments:
1. Savings accounts that pay less than half a percent
2. Certificates of deposits that barely pay one percent
3. Regular income stocks that pay dividends that are fully taxable
4. Corporate bonds that pay fully taxable income
5. Treasury bonds and notes that are Federally taxable
6. Municipal bonds and muni bond closed-end funds that pay tax free interest with over 120 tax-free CEFs paying in excess of 6%

Uncertainty in the stock market has been continuing for months. In addition, there is the significant possibility of tax increases. Investors are turning to tax-free closed end funds or CEFs that invest in municipal bonds that pay interest that is exempt from Federal taxes and can be exempt from state taxes if issued in the state you live in. Although these are occasionally referred to as tax-free stocks, they are technically closed-end funds. WallStreetNewsNetwork.com has turned up over 150 of these tax-free CEFs.

Municipal bonds are great for high tax bracket taxpayers, as they provide income that is tax free from Federal income taxes, and if the bond is issued from the state in which the taxpayer resides or from one of the territories of the US such as Puerto Rico, Guam, or the Virgin Islands, then the income is also exempt from state taxes. Munis are generally issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, bridges, and water and power departments.

Some of these CEFs have yields of 5% or more, such as the Invesco Municipal Income Opportunities Trust II (OIB), which yields 6.6%, sells at a discount to net asset value, uses almost no leverage, and has a management fee of 0.58%. The CEF has been paying dividends since 1989. Nuveen New York Performance Plus Municipal Fund (NNP) has a goal of providing current income exempt from regular federal and New York State and City income tax. The fund yields 6.0%, trades at a 6.5% discount to NAV, has leverage of 35.58%, and has a management fee of 0.69%.

For California residents, you can consider Neuberger Berman California Intermediate Municipal Fund Inc. (NBW), which is exempt from federal and California income taxes. It sports a yield of 5.5%, and trades at a very slight discount to NAV. However, it utilizes very high leverage at 41.1% and a management fee of 0.67%.

The Municipal Bond Closed End Funds have numerous advantages. There is no minimum investment. You could technically buy one share. Dividends are paid monthly, so you receive you capital back faster, and you generate quicker compounding of your income. The CEFs are very liquid and traded on major exchanges. The CEFs trade with narrow bid and asked spreads compared to municipal bonds. You can sell off small portions of your CEF holdings if you need funds.

Issues to watch out for include high leverage, high management fees, and CEF's trading at a premium. Also be careful about income that may be subject to Alternative Minimum Tax.

WallStreetNewsNetwork.com just updated its list of tax free income closed end funds, which includes over 175 CEFs, including yields, discounts and premiums, leverage, management fees, date founded, and other information.

Disclosure: Author did not own any of the above at the time the article was written.

By Stockerblog.com

A Cool Way to Look Up Prices for Municipal Bonds

Municipal bonds trade in a very illiquid market. Bond owners are at the mercy of their brokerage firms in terms of getting muni price quotes. Now, you have an easy way of getting quotes, or at least recent sales.

FINRA, the Financial Industry Regulatory Authority, has a Quick Bond Search. Just click on the Municipal button, enter the CUSIP number in the symbol box, and click the Search button.

Which Are Better? Muni Bonds or Tax Free CEFs

With the stock market volatility and uncertainty, and the possibility of future tax increases, many investors are turning to tax free bonds, also known as municipal bonds and munis, or they are choosing the alternative tax free income closed end funds, of which there are over 250 available according to WallStreetNewsNetwork.com. When deciding which is the better way to go, investors should know the advantages and disadvantages of muni bonds versus closed end funds, generally referred to as CEFs.

Municipal bonds have always been popular with high income taxpayers, since the bonds provide income that is tax free from Federal income taxes. If the bond is issued from the state where the taxpayer lives or from one of the territories of the US such as Puerto Rico, Guam, or the Virgin Islands, then the income is also exempt from state taxes. Munis are generally issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, and water and power departments.

One of the advantages of munis is that you can pick and choose what governmental agency you want to loan money to. Investors may be better off sticking with those that fund projects with guaranteed income streams such as bridge tolls.

In addition, bonds have a maturity date. Why is that important? It means that no matter how high interest rates go, and no matter how low the bonds drop in value, at maturity, the bonds are paid off at par.

There are some drawbacks though. Bonds carry a high minimum investment. Although munis are issued in $5,000 denominations, a round lot is generally considered by many brokerage firms to be $100,000.

There is less diversification available to investors. Because of the higher minimum, investors can't own as many diverse bonds as they could with a CEF.

Also, interest payments are made only twice a year, and there is no professional management or monitoring of the bonds.

One last disadvantage is illiquidity. Munis are not traded on an exchange, and estimated prices given on brokerage statements may be way off from what brokers will actually offer you if you want to sell.

So what about tax free closed end funds? First, there is no minimum investment. If your brokerage firm would allow it, you could conceivably buy one share of a CEF.

The CEFs provide a monthly income, and with that monthly income, the investor's capital is returned faster, which means you can do faster compounding of your income. Also, since CEFs are traded on major exchanges, they are very liquid.

Taking a look at the negatives of muni CEFs, you do pay a management fee and other administrative fees, plus some CEFs use leverage, which increases the risks to the investor. Some CEFs may be trading at a premium to net asset value, which should be avoided.

With the exception of a few target funds, there is no maturity date, so if rates go up and continue to rise during your lifetime, you may never get your principal back.

As you can see, there are advantages and disadvantages to both municipal bonds and CEFs. You have to be the one to decide which way to go. If you want a list of municipal bond closed end funds, which can be downloaded, sorted, and updated, go to WallStreetNewsNetwork.com.

By Stockerblog.com

Secret Year-End Tax Tips

I am not a CPA nor am I a tax attorney, and any of the following suggestions are just ideas that should be reviewed with your own CPA and/or tax attorney. Second, some of these suggestions may trigger or adversely affect the Alternative Minimum Tax, so talk to your tax advisor about this. I tried to come up with some uncommon tips that you normally wouldn't see written about elsewhere.

1. $20 Gold Pieces for Your Heirs
This is one I heard from a coin dealer, so be very skeptical about this and definitely run it by your accountant. The technique is to buy a bunch of rare $20 Gold Pieces which you will eventually leave to your heirs. When I say rare, I mean $100,000 or $200,000 for a coin. When you pass away, because the coins are still considered currency, they will only be valued at $20 each for estate tax purposes (according to this coin dealer). The coin dealer has other suggestions with these coins (i.e. being paid with them to reduce capital gains, etc.), but I'm even more skeptical about that. (Do you think the coin dealer has a hidden motive by saying this?) Like I said, ask your CPA or tax attorney.

2. Anonymous Donations to Charity
If you have ever wanted to make a totally anonymous donation to a charity (and there are several reasons you may want to) but still want to be able to take a tax deduction, here is what you can do. Go to your local post office and buy some Postal Money Orders. You are allowed up to $1000 per money order. Don't request more than three at once, otherwise the Post Office will request identification from you. On the money orders, write the name of the charity where it says "Pay to" along with the charity's address, but leave the part where it says "From" blank. However, on the receipt, which you will keep with your tax records, you can fill in your name as the sender. As for the original, send it in to the charitable organization in a plain envelope and no one will be able to trace it back to you.

3. Worthless Stocks
According to the IRS, "a taxpayer who owns stock that was acquired on the open market for investment and that has declined in value is allowed a deduction for a capital loss in the taxable year in which the stock is sold or exchanged or becomes wholly worthless." But the big question is "When do they become worthless?" Worthless is kind of a nebulous word. Just because a company declares bankruptcy, doesn't necessarily mean that the stock stops trading. And I've seen several stocks stop trading for a year or two then start up again. If you have the stock in the form of a certificate, there are companies that will buy your old certificates as collectibles. It may not be much, maybe only a dollar, unless the company is in an unusual industry or has an interesting picture on it. The sale might be considered a transaction for capital loss purposes, but you need to ask your advisor.

Please note, if a public company committed accounting fraud (e.g Enron), you cannot deduct the loss as a theft loss. The IRS states that they will disallow such deductions and may impose penalties.

4. Short Selling
If you are a short seller, and you short a lot of stocks that pay dividends, remember that technically you owe and pay the dividends to the owner of the shares that you shorted. Since this is an investment expense, make sure your accountant takes this into consideration.

5. Municipal Bonds from US Territories
For the owners of a diverse portfolio of municipal bonds who live in states with income taxes, remember that if you have any munis from Puerto Rico, the Virgin Islands, or Guam, the income is exempt from state income taxes. On the Tax Statement Form from brokerage firms, generally all income from municipal bonds are lumped together in the same section. If you live in California, and you own munis from New York, California, Puerto Rico, and Texas, the interest on the California and Puerto Rico bonds are exempt. Occasionally, staff workers at accounting firms may carve out (in this case) just the California interest, and lump all the other interest together, including the Puerto Rico interest, as taxable California income. Of course, it's always a good idea to check your entire return before you sign it.

You will of course see a lot of other tax saving tip articles this week. A couple things to keep in mind. Many income and deduction adjustments can trigger the AMT. Also, if you expect your income to be much higher next year, take a longer term approach to planning your deductions. As previously mentioned, check any tax techniques, the ones above and any others that you read about, with your tax advisor.

By Stockerblog.com

Bond Trading Versus Stock Trading

Bond Trading Versus Stock Trading

Guest Article

Overview of bond trading

In the financial and investment market, bonds refer to a type of debt security whereby the issuer of the bond owes the purchaser a debt. Depending on the specific terms of the bond, the issuer is obligated to paying the purchaser interest and/or repays the total principle to the purchaser at a later date. This date is referred to as the maturity day. It is a formal financial contract the borrowed money is repaid with interest included and paid at fixed intervals throughout the life of that contract.

There are numerous types of bonds such as bearer bonds, fixed-rate, and many others. However one of the most common and popular are the municipal bonds which are typically issued by different government agencies such as a city or local governments, state governments, or US territories. The interest that the purchaser of the bond receives is normally exempt from federal and state income taxes.

Overview of stock trading

Even though stock trading is a common terminology, it is actually a misnomer because you really don’t trade shares of stock. You purchase them for the purposes of selling them at a profit. In the language of the financial and investment markets, you purchase and sell shares of stock either on the floor of one of the different stock exchanges or online. Additionally, the individual who purchases and sells shares of stocks is referred to as a stock trader.

Advantages and disadvantages bond trading

As with any type of financial and investment instrument, there are certain advantages and disadvantages to trading bonds. Although they tend to be much less aggressive than shares of stocks typically are, they usually provide the investor with a steady income stream. Over the long-term, this means that their performance might be poorer than what you would experience with stocks. Additionally, and like other investments, there are certain risks involved with bond investing.

The two primary advantages are those involving income and ratings. The income advantage is the fact that they are a safer investment than stocks while the rating advantage is a system that enables the investor to gauge a bond’s reliability. The key disadvantages involve risk and security. The former is associated with the fact that you can’t always trust those systems that rate bonds. The security disadvantage refers to the fact that the bond is only as good as what the borrower’s ability to repay the loan is.

Advantages and disadvantages of stock trading

As with trading in the bond market there are certain advantages and disadvantages where stock trading is concerned that you need to be aware of:

The key advantages are:

o better returns on one’s investment
o familiarity with the larger companies
o wide range of investment choices

The key disadvantages include:

o cost of shares
o leverage is typically lower than other forms of investments such as the FOREX market
o uptick rules regarding short selling meaning that you have to wait for the price of the stock to increase before you can short sell it

The Advantages of Tax Free CEFs Yielding Over 5%

With so much uncertainty in the stock market, and with the possibility of tax increases on the horizon, investors have been allocating funds into tax free bonds (municipal bonds), directly and through tax free income closed end funds. Tax free closed end funds or CEFs have several advantages over investing in municipal bonds directly.

Many of these CEFs have yields of 5% or more, such as the Blackrock Apex Municipal Fund Inc. (APX), which sells at a discount to net asset value, uses almost no leverage, and yields 5.7%. The Nuveen New York Dividend Advantage Municipal Fund 2 (NXK) has a yield of 5.8%, is currently trading at a discount to NAV, and has about 26.5% leverage, much lower than the average leverage of 34.7% for all the CEFs. The Nuveen Investment Quality Municipal Fund Inc. (NQM) yields 6.6%, utilizes about 29% leverage, and trades at a slight discount. WallStreetNewsNetwork.com just updated its list of tax free income closed end funds, which describes almost 200 ETFs,, including yields, discounts/premiums, leverage, management fees, date founded, and other information.

High income taxpayers love municipal bonds, as they provide income that is tax free from Federal income taxes, and if the bond is issued from the state in which the taxpayer resides or from one of the territories of the US such as Puerto Rico, then the income is also exempt from state taxes. Munis are generally issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, bridges, and water and power departments. Here are the advantages and disadvantages of munis and muni CEFs.

Municipal Bonds

Advantages:

1. You can pick and choose what governmental agency you want to loan money to. Maybe you want to stick with the bonds from the cities and counties near you that you are familiar with.

2. Bonds have a maturity date. This means that no matter how high interest rates go, and no matter how low the bonds drop in value, at maturity, the bonds are paid off at par.

3. What your bond is worth is what your bond is worth; in other words, the trading price of CEFs may be far higher or lower than the net asset value of the fund.

Disadvantages:

1. Higher minimum investment. Although munis are issued in $5,000 denominations, a round lot is generally considered by many firms to be $100,000.

2. Less diversification. Because of the higher minimum, investors can't own as many diverse bonds as they could with a CEF.

3. Interest payments only twice a year.

4. No professional management or monitoring.

5. Illiquidity. Munis are not traded on an exchange, and estimated prices given on brokerage statements can be way off from what brokers will actually offer you if you want to sell. This actually happened to me; I received an offer of five points less than what the statement showed a couple days before, with no change in interest rates over those couple days.

Municipal Bond Closed End Funds

Advantages:

1. No minimum investment. You could technically buy one share.

2. Monthly income.

3. With the monthly income, you receive you capital back faster, and you can do quicker compounding of your income.

4. Very liquid; traded on major exchanges.

5. Narrow bid and asked spreads compared to municipal bonds.

6. Can sell off small portions if funds are needed. In other words, if you had $10,000 invested and needed to cash in $1,000 worth, you could do it with a CEF but not with municipal bonds.

Disadvantages:

1. You pay a management fee and other administrative fees.

2. Some CEFs use leverage. You should beware that this increases the risks to the investor.

3. Some CEFs may be trading at a premium to net asset value. You want to look for those trading at a discount.

4. No maturity date (other than a few target funds). If rates go up and continue to rise during your lifetime, you may never get your principal back.

As you can see, there are benefits to both municipal bonds and municipal bond closed end funds. Just make sure that you are familiar with the risks and costs of each.

Disclosure: Author does not own any of the above at the time the article was written.

By Stockerblog.com

Tax Free Bonds versus Tax Free CEFs

A very choppy stock market, along with potential future tax increases, have driven a significant amount of money into tax free bonds (also known as municipal bonds), either directly or indirectly, through tax free income closed end funds. When making a determination of which way to invest, it is helpful to know the advantages and disadvantages of the bonds versus the closed end funds, commonly referred to as CEFs.

Municipal bonds have always been a favorite of high income taxpayer, as they provide income that is tax free from Federal income taxes, and if the bond is issued from the state in which the taxpayer resides or from one of the territories of the US such as Puerto Rico, then the income is also exempt from state taxes. Munis are generally issued by states, counties, cities, and other governmental entities such as school districts, sewer districts, and departments of water and power.

Municipal Bonds

Advantages:

1. You can pick and choose what governmental agency you want to loan money to. Maybe you want to stick with the bonds from the cities and counties near you that you are familiar with.

2. Bonds have a maturity date. This means that no matter how high interest rates go, and no matter how low the bonds drop in value, at maturity, the bonds are paid off at par.

3. What your bond is worth is what your bond is worth; in other words, the trading price of CEFs may be far higher or lower than the net asset value of the fund.

Disadvantages:

1. Higher minimum investment. Although munis are issued in $5,000 denominations, a round lot is generally considered by many firms to be $100,000.

2. Less diversification. Because of the higher minimum, investors can't own as many diverse bonds as they could with a CEF.

3. Interest payments only twice a year.

4. No professional management or monitoring.

5. Illiquidity. Munis are not traded on an exchange, and estimated prices given on brokerage statements can be way off from what brokers will actually offer you if you want to sell (speaking from personal experience).

Municipal Bond Closed End Funds

Advantages:

1. No minimum investment. You could technically buy one share.

2. Monthly income.

3. With the monthly income, you receive you capital back faster, and you can do quicker compounding of your income.

4. Very liquid; traded on major exchanges.

Disadvantages:

1. You pay a management fee and other administrative fees.

2. Some CEFs use leverage. You should beware that this increases the risks to the investor.

3. Some CEFs may be trading at a premium to net asset value. You want to look for those trading at a discount.

4. No maturity date (other than a few target funds). If rates go up and continue to rise during your lifetime, you may never get your principal back.

As you can see, there are benefits to both municipal bonds and municipal bond closed end funds. Just make sure that you are familiar with the risks and costs of each.

By Stockerblog.com