Everyone likes to earn money and nobody likes to pay more taxes than they need to. Fortunately for taxpayers these days, there certain types of investments that will permit people to do both.

Municipal Bonds, also called Munis, are debt instruments issued by state and/or local governments looking to raise capital. Interest income from these types of bonds is exempt from federal tax and state tax if you live in the issuing state. As with all investments of this type, the taxpayer should make certain that the situation would not be Dis-advantageous before investing. Depending on the taxpayer's tax bracket and the investment yield of the instrument, the taxpayer could end up with more after-tax dollars by purchasing a fully taxable bond than by purchasing a Muni of comparable value.

Bills, notes, and bonds issued by the United States Treasury pay interest that is exempt from state income tax, and Series EE U.S. Savings Bonds earn a competitive interest rate, while favoring the investor by deferring the tax burden until the bond matures.

Investment real estate still offers taxpayers an excellent shelter by way of depreciation deductions, particularly for taxpayers earning less than $100,000 annually. Also, appreciation potential in investment real estate is favorable. In addition, when the property is sold, long-term real estate gains are taxed at a maximum rate of 20 percent, as opposed to 39.6 percent for other income. Should the taxpayer elect to exchange a property for a different property as an alternative to selling, it may be possible to defer the capital gains tax. Common stock in growth companies is frequently overlooked as a desirable, tax-advantaged investment. Instead of paying dividends, growth companies reinvest their profits in their businesses, hopefully increasing stockholders' future capital gains, which would be subject to a favorable tax rate.

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