The Bridgeport times and evening farmer., 1920-04-17
TAX EXEMPTION IS IMPORTANT
 TO INVESTORS
By Harold F. Greene Manager Bond Department Guaranty Trust Co.
 of New Yer4.1

of New Yer4.)
 Tax exemption hs Of vital inpor- tanee to investors in view of the fact that the income from their Invest rnents is fixed and does not increase with increases in the cost of living. In the case of wealthy investors, the percentage of net profit in invest ments etfer paying taxes is very small, and it is therefore almost es- sentiaI for such individuals tS pur- chase tax-exeEaEet securities The se- lection of Investments under such circumstances is often a difficult mat ter; therefore it is advisable, when in vestf44g, to consult with someone who is thoroughly familiar with the pro- visions of the Revenue Law pertain ing to tax exemption. In the follow ing article some of the features of this problem are outlined. It must always be rem enIbered, however, that a decision as to the proper invest m ents to make will depend in each instance upon the particular circuTT1- stances of the case.
 Under os4r Federal Revenue law the interest on all domestic railroad, pub lie utility, and industrial bonds is subject to income tax, whether owned by residents or non-resfdents The in- IfIGf5L on SEI DOIPIEo OI lOTS-s9Il NOOIl- tries or corporations is also subject to such tax when these bonds are owned by citizens or residents of the United States. However, because of the prevailing hiagh rates of surtax, the net return to wealthy investors on such securities is comparatively srnaM and in consequence there is a large demand for bonds the income from which is exempt from taxation.
 Included among tax-exenlpt secal1- ities are the obligations of states, Territories, amy political ssl141d1- vision thereof, or the District of Co., Iur4lbia Political subdivisions of State or Territory as defined by the Commissioner of Internal Rewenue include special assessment districts such as road, water, ssemer, gas, ldg1lt, reclamation, drainage, irrigation, levef,, school haTbor, port improve rrent, and similar districts, and di- visions of a Satate or Territory The interest on bonds issmed by amy sGIch districts is exempt from taxation un- der the Federal 1asEs, hut if 9, State or rnqEn1cipaa bond is bought at a dis count the amount, in excess of tine price paid, received when the bond IS sold or reffred at maturity Is a tax able profit. Conversely, If such a bond is bought at a preIndEnn the diff ference between the amount paid and the amount received is dfsdnctifhle as a loss in the income tax FetTTn-
 Prior to the hotatIan of the Iloerty Loans, the interest on all chf6gations of the United Sitahes Government was exempt from taEafhon, except estatss or inheritance taxes. Tine Finst Hdb- erty Loan 3 1-2 Trsr cent. Bonds were issued on that fEas5iss lbEh in vaew of the large amount of Government war financing that appeared TnewIraible, 1t was realized that it would be nnpos- slfFle 10 continue issuirpg taz-eNernpt bonds indefinitely; therefore issues of Government bonds, after September 1, 1917, were only exempted from tax alton in limited amounts ana for pc ricdS of two and five years as pro- -vided in the laEws authorizing tine var ious issues. These provisions make it possBtde. for an investor to czTn a maximum principal amount of Sf6l;0D0 of the As and 4 Ifs, exempt from all income, and excess profit taxes. Tine Victory 3-4 per cent. MOtRS in amy amount hike t:he Fsirst Iifoerty 3 1-2 per cent. bOrrtks PIC E0ErElTIt f1zNun all taxation, except +estate or inheritance taxes.
 Among the uther issues that are tax-exenIrret under the Federal Rev .euue Iasw are bonds issued by Federal Land .Ba.Ir1s and Joint Stock Land Banks WtIff3h are exempted from all taxation, except estate or inheritance taxes, beaguse they are 'fnsbrumen- talities of the UIEited States Govern m e1ut" The object of the Federal Farm Loan -AE1t 7was to .sst1Irrulate the development of a4spfteElttuue, and to provide the farmer with funds at q low rate of interest. If bonds issued to obt4iu such +3unas hno oten s"b- ject to tarxaticM it would hay pe Il much nicre difficult to sell them and the cost of n. money to e farrn r wou'" have been much g'eeter Bonds issued by the War Finance Corporation are partially exempt from taxation, the interest on any amount of these honds being exempt from Normal Federal Income Tax, but, subject to SIIrtsLXeS and excess profits taxes The interest prin- cipal amount not exceeding 5000 Is, however, exempt from all Federal taxation, except estate or inheritance taxes.
 There is d big demand for tax exempt securities because of the de- cided atfMa1rtaeye to wealthy investors of owning them. The advantage, how ever is not the same in all cases owing to QUIT graduated rates of sur tax. For instance, an investor hay ing a present taxable income of S10,- GOO per efTrnum would obtain as good a return from an additional invest ment in 5.1O per cent. taxable bonds as he would from 1-2 per cent. tax exempt bonds whereas an investor having 8 taxable income of S100, ,0OG per annulM would have to receive II IA per cent. on szn additional invest 1aent in taxable bonds to give him the same net yield after taxes as he would obtain from 1-2 per cent
 taX-exempt bonds. To investors with incomes over S100,OeO per annuIn ar
 additional investment in 1-2 per cent. tsrx-exefnpt bonds is equivalent
 tn a taxable investment yielding
 about s 3-+ per cent.
 In the case of the small investor, f
 is more profitable to invest in higF
 yield bonds that can be obtained a
 the present time. than in taX-eXemp
 securities. and, even in the case O
 large investors. q certain proportion
 of taxable securities can be owned tt
 advan tage- In view of the possibilitie'
 of subsequent appreciation in value i
 tax rates decline. it rafSht he deSir