Tax Break on Munis

Physician's Money Digest, October15 2003, Volume 10, Issue 19

With the IRS on the warpath againstshady trust schemes, 1 of the last greatlegal tax shelters is municipal bonds(munis). The interest on munis is freefrom federal income tax and if you buybonds issued by the state in which youlive, you can usually dodge state incometaxes too. The General Obligationbonds are generally considered risk-free,since they're always backed by thetaxing power of the state or municipalgovernment that issues them. Revenuebonds, which raise money for projectslike toll roads or sewage treatmentplants, are riskier because they dependon income from users to pay off debt.Also, interest on some of these special-projectbonds may be subject to thealternative minimum tax.