And one of the most popular ways to achieve income is through bonds. Typically, the highest yielding bonds are those issued by a corporation. But you won't get to keep all the income you earn from corporate bonds, because these bonds are fully taxable. Therefore, your actual return will be less than the bond's stated interest rate. How much less depends on your individual tax bracket.
Municipal bonds are a popular alternative to taxable bonds.
When you invest in municipal bonds, your income is exempt from federal income taxes. And, if you buy bonds issued by the state or municipality where you live, your earnings also may be exempt from state and local taxes. Many investors in high tax brackets have long used municipal bonds to provide tax relief. However, even if you're in the 28 percent federal tax bracket, you may still come out ahead with a municipal bond vs. a higher yielding, taxable corporate bond. The answer lies in a term called the taxable equivalent yield.