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Could someone please let me know if how I did the problem below is correct! Thank You! In class, we discussed the differential tax rates
Could someone please let me know if how I did the problem below is correct! Thank You!
In class, we discussed the differential tax rates among areas and taxpayers with respect to the implicit and explicit tax rates. This exercise is an opportunity for you to examine this theory in the real world. Hence, you are requested to select a taxable bond fund and compare it to two or three municipal bond funds that are state specific. Hence, there are three or four funds in total that are analyzed by you one corporate bond fund, two municipal bond funds The objective here is to see if a person can arbitrage a profit by selectively investing in another states municipal fund. One muni fund may be your state of residence and the other might be a state with a zeroincome tax rate. You might include a fourth state with a state income tax rate that is significantly higher than your state of residences state income tax rate.
For a given point in time, you are expected to determine if and if so to what extent, a wealth advantage exists for our base taxpayer presumably you This is not an easy task since you need to consider several variables. For example, there are different
Federal income tax brackets you might select the highest rate and your own marginal tax rate
State income tax brackets dependent on the states chosen by you note you can only choose one state with no state income tax ie a zerotax rate
Risk of bond fund should be nearly equal or adjusted to approximate equality
Standard deduction although itemization would be a reasonable assumption for a small population of our country, you can ignore this issue unless you want to analyze it and simply assume you elect the standard deduction
Be sure to document your sources.
In this analysis, Ill be covering three different states:
BNY Mellon Corporate Bond M corporate bond fund
New York municipal bond fund
Florida municipal bond fund
Will determine that our current state of residency is Philadelphia, PA and we are single making $ causing our federal tax bracket
Below are all the details regarding the corporate fund as well as the two municipal bonds:
Starting with our Corporate Bond Fund, BNY Mellon Corporate Bond M:
Yield:
Federal Tax Bracket:
State Tax:
Overall After Tax Yield: x x
As we can see the overall Corporate Bond yield with PA state tax isnt terrible. Depending on certain circumstances, your interest, capital gains, and issue discount could see returns of But this is a great baseline to compare the other two investment decisions.
Moving along, will go into both Municipal Bonds, starting with New York:
Fund Name: PIMCO New York Municipal Bond Fund Institutional Class
Yield:
State Tax:
o We are only taxed in New York State Tax since we are only making $ per year.
Overall After Tax Yield: x
Now we can see with our first investment decision, PIMCO New York Municipal Bond Fund Institutional Class, that our projected yield is which is points above our baseline Corporate Bond
Lastly, we have our Florida Municipal Bond:
Fund Name: S&P Municipal Bond Florida Index
Yield:
State Tax: None
o The state of Florida has no State Income Tax which is why it is none.
Overall After Tax Yield:
Here we can see that Florida provides very promising returns with their Municipal Bond yield being causing the overall After Tax Yield to be This could provide very promising returns for someone who lives in a state with low taxes such as Pennsylvania.
Here is a side by side comparison of all three of our investment opportunists:
BNY Mellon Corporate Bond M Corporate Bond:
PIMCO New York Municipal Bond Fund Institutional Class Municipal Bond:
S&P Municipal Bond Florida Index Municipal Bond:
Its evident that amongst these three vastly different investment opportunities, Florida provides the best outcome with a investment yield. This is due to the state not having any state taxes, making it great for investment opportunities. Another runner up would be New York City due to its higher yield as well. Overall, all three are great opportunities but ultimately, Floridas Municipal Bond would be the one to go with due to its high yield and promising yearly returns.
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