Perspectives Blog

The new tax regime and stock compensation

Abram Claude, Vice President, Columbia Management Learning Center | October 30, 2013

…er, and it is subject to ordinary income tax and generally payroll tax (including Social Security, Medicare and the Medicare surtax, if applicable). Employers are generally required to withhold for payroll and ordinary income taxes. The most well-known stock compensation program involves grants of non-qualified stock options (NQSOs). The grants are issued with a specific exercise price. Most NQSOs do not become compensation until the employee has…

Don’t throw the baby out with the bath water – The case for long muni bond funds

Catherine Stienstra, Senior Portfolio Manager | January 29, 2014

…e is 43.4%, resulting in many investors taking home barely 56 cents of each dollar earned. Municipal bonds can help investors keep more of what they earn, since the income may be exempt from local, state and/or federal income taxes. As tax rates move higher, investments that provide income exempt from taxes, such as municipal bonds, become more appealing. There was a significant increase in rates and steepening of the yield curve in 2013, as the…

Detroit bankruptcy — One year later

Ty Schoback, Senior Municipal Analyst | August 18, 2014

…ld rule in their favor. A common argument for why UTGO bondholders accepted less than 100% recovery is Detroit’s tax base was deemed too dilapidated to carry through with the bond indenture pledge to “levy ad valorem property taxes sufficient to meet debt service, without limit as to rate or amount.” There is no question Detroit’s tax base has suffered significant erosion. However, that argument remains an open question when considering the full…

The coming divide in state credit quality

Ty Schoback, Senior Municipal Analyst | June 3, 2014

…vergence and seek to be appropriately compensated for investing in states of varied creditworthiness. State tax revenues typically exhibit greater economic sensitivity than local governments due to greater reliance on income taxes. Since the end of the Great Recession, states have seen above average annual tax revenue growth, largely driven by robust equity market gains that have generated strong capital gains taxes. A number of states have mana…

Trouble in paradise: Q&A about Puerto Rico bonds

Chad Farrington, CFA, Head of Municipal Bond Credit Research and Senior Portfolio Manager | January 2, 2014

…, fiscal agent and financial advisor. Beyond 2014, however, Puerto Rico needs economic growth to generate additional revenue to meet future obligations. Unfortunately, reducing workforce, cutting other spending and increasing taxes tend to run counter to generating economic activity. This partly explains current market discounts on PR debt, which signal potential future default and investor haircuts as part of a potential debt restructuring. Ther…

Does it still pay to hold municipal bonds?

Anders Myhran, Municipal Portfolio Manager | July 29, 2014

…nd geographic concentration risk. In general, bond prices rise when interest rates fall and vice versa. This effect is more pronounced for longer-term securities. Income from tax-exempt bonds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal and state income tax rules will apply to any capital gain distributions and any gains or losses…

Trust accounts and the net investment income tax

Abram Claude, Vice President, Columbia Management Learning Center | October 9, 2013

…c. The 3.8% net investment income tax (NIIT) does not just apply to the individual investor. It also applies to certain trusts,* and as with individuals, the 3.8% surtax is in addition to ordinary income and/or capital gains taxes owed by the trust. Determining if and when the NIIT may apply in the case of a trust is complex. This article is not meant to be a comprehensive discourse, but rather a high-level overview of where the tax may apply to…