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Want to reduce your taxes? Buy muni bonds

As tax season winds down, many people were surprised to receive a tax bill and are now bewildered about what to do next. The Tax Cuts & Jobs Act of 2018 eliminated many deductions, including the SALT deduction (state and local tax), charitable contributions for those who don’t itemize, among many other strategies normally applied before year-end to reduce taxes. The only remaining strategy to reduce tax may be by way of investing in tax-free, municipal bonds.

If you’re in a high income tax state, owning municipal bonds will generate interest that’s both state and federal tax-free. If you want to reduce your taxes this year, now’s the time to revisit your investment plan.

Top state income tax rates this year are 13.3% for California, 9.9% Oregon, 4.63% Colorado, 11% Hawaii, and 8.82% New York^1. Depending on where you are on the tax bracket, this can be a big problem since you’re no longer able to deduct these amounts against your federal return.

National muni bond funds are composed of multiple states and rates range from 1.55% for a 1-year bond, 1.9% for a 10-year bond, and 2.66% for 30-year bond.^2 Income is state tax-free up to the amount the fund is invested in your state and is entirely federally tax-free. State-specific bond funds are entirely state and federally tax-free. The iShares California Muni Bond ETF “CMF” has a current yield of 2.04%.^3 The tax-equivalent yield is 4.17%, assuming the highest marginal rates. The iShares New York Muni Bond ETF “NYF” is paying 2.31%, with a tax-equivalent yield of 4.72%^4

At Eureka Wealth Management, I create investment strategies that can mitigate tax, reduce risk, and grow for the future. I also analyze retirement and consult on insurance and estate strategies. Call for a free, initial consultation (760) 537-0791 or online at eurekawealthmanagement.com.

^1 https://files.taxfoundation.org/20190320120532/PIT-2019-FINAL.F-01.png

^2 https://www.bloomberg.com/markets/rates-bonds/government-bonds/us

^3 https://www.ishares.com/us/products/239731/ishares-california-amtfree-muni-bond-etf

^4 https://www.ishares.com/us/products/239767/ishares-new-york-amtfree-muni-bond-etf

​Mail: ​8605 Santa Monica Blvd, pmb 35721

West Hollywood, California 90069-4109 US


(760) 537-0791


Eureka Wealth Management is a registered investment adviser in the State of California. The adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment advisory services. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.