Examples of tax shelters for individuals include1. interest on municipal bonds2. realized short-term capital gains3. IRAs

Question

Quizplus · Accepted Answer

1. Interest on municipal bonds is exempt from federal income tax and also from state and local taxes if the bondholder is a resident of the issuing state. Hence, it is a tax shelter.
2. Short-term capital gains are subject to ordinary income tax rates, but losses can be used to offset other gains. Thus, it is a tax shelter.
3. Contributions to an Individual Retirement Account (IRA) are tax-deductible, and the investment earnings grow tax-free until withdrawn. Hence, it is a tax shelter.

Examples of Tax Shelters for Individuals Include1