6 Ways To Pay Less Taxes On Your Investments (Legally)

Introduction to Tax Strategies for Investments00:00

Taxes are one of the biggest invisible drags on investment income. Today, breaking down six tax-advantaged income strategies to keep more of what you earn and build investment income more efficiently.

The less you lose to taxes, the more you keep compounding year after year.

Instead of paying Uncle Sam 30% of your income, pay only 10% or even zero in some cases. That money keeps working for you long term.

1. Municipal Bonds00:30

For high-income investors, municipal bonds (munis) are like a cheat code for income. Interest is exempt from federal income tax and sometimes state tax if you live in the same state as the issuer. Yields are lower than taxable bonds, but after-tax return is often higher because no federal tax cut.

Example: 10-year tax-exempt muni bond yielding 2.63% (green bar). Compare to 10-year taxable US Treasury yielding 4.34% (yellow bar):

• In 24% tax bracket: Treasury better (3.30% after tax vs. 2.63%).
• 32% bracket: Closer.
• 38.8% bracket: Almost identical.
• 40.8% + 3.8% NIIT (44.6% total): Muni better.

Fidelity calculator for tax-equivalent yield: Compare CD at 4% yield, $100,000 income, married filing jointly, Ohio with 2% local tax.

• In-state muni needs 3.3% to match.
• Out-of-state muni needs 3.46% to match. Useful for apples-to-apples after-tax comparisons.

2. US Treasuries02:30

US Treasuries are federally taxed but exempt from state and local tax—big difference in high-tax states. Super liquid and safe (risk-free rate backed by US government).