Investing and Income Taxes in 2007

Should you invest in a tax-free municipal bond this year? Or would a taxable investment make more sense for you?

It's a classic investing question, which is why we've updated our tool for helping you make your choice for 2007! Our tool will take your basic data regarding how much income you expect to earn and how much you'll have to pay in taxes, to determine if that tax-free investment you might be considering is actually worth it.

Along the way, our tool will provide a good first approximation of your marginal tax rate. This calculation is only a first approximation since things like the phase out of tax credits at higher income levels can affect what tax bracket you'll actually find yourself in when you file next year.

To use our tool, you'll need a copy of your tax return for 2006 (remember all that cussing and yelling you were doing back in April?!), since you'll already have done some of the math needed to use our tool - all you need to do now is plug in the numbers you found then. If you expect your numbers will be significantly different this year, then go with what you expect:

1040 Tax Return Data for 2006
Input Data	Values
Line 63: Taxes You Owe ($USD)
Line 22: Your Total Income ($USD)
Line 8b: Income from Tax Exempt Bonds ($USD)
Your Filing Status	Box 1: Single Box 2: Married, Filing Jointly Box 3: Married, Filing Separately Box 4: Head of Household
Line 37: Your Taxable Income ($USD)
Potential Investment Information
Taxable Investment Return (%)
Tax-Exempt Investment Return (%)

Tax Rates and Preferred Investment Choice
Calculated Results	Values
Your Average Tax Rate (%)
Your Marginal Tax Rate (%)
Preferred Investment Type

The tool above is based upon math outlined by columnist Bruce Bartlett in his March 2005 column Tax Rates. Bruce just recently opened his own blog over at Townhall.com!