Tax free municipal bonds are binding agreements that investors can purchase from various issuing bodies such as cities, counties, states, school districts and others.
The issuers of these bonds will usually agree to pay the bondholder a set amount of money, included interest that will accrue at a fixed rate, at a specific time.
These bonds tend to be extraordinarily popular among individual investors for a number of reasons.
First, these binding agreements are free of both federal and state taxes.
In many instances, investors are even able to avoid local income taxes when purchasing these bonds, depending upon the state in which they are purchased and the state in which the bondholder resides.
The various nuances that can arise when selecting the best options for individual investment goals often make it necessary for novice buyers to work with a seasoned and reputable bond broker.
The advantageous structure of this form of investing is due in large part to the Sixteenth Amendment of the United State Constitution which was put in place in 1913, establishing the decision of the federal government to not apply direct taxes to bonds of this type.
The 1986 Tax Reform Act is a continuation of the exemption from being directly taxed on any earned interest from municipal securities.
In essence, these bonds are legally and constitutionally guaranteed to be exempt from taxation.
An additional benefit of investing in this fashion is the sense of satisfaction that people can get from making a worthy contribution to the betterment of those things that bond issuers commonly use these funds for.
For example, a tax free municipal bond that is issued by the school district will help to provide a number of improvements within the local school system.
In many ways, bondholders are frequent contributors to many of the state and local improvements that help to keep certain regions thriving.