taxation short term us treasuries

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ether
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taxation short term us treasuries

Post by ether »

Looks like interest income from 4 week bills from treasury direct is treated as interest income and taxed as normal income (exempt from state income tax)
This doesn't seem tax advantageous since stock dividends are taxed as long term capital gains if held for a while.
Does this mean money market ETFs are able to get the income they generate classified as long term capital gains since it's a dividend and not income?

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unemployable
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Re: taxation short term us treasuries

Post by unemployable »

The tax status depends on that of the underlying investments. For example, for MLP ETFs, distributions are treated as return of capital and aren't taxed at all immediately, but do lower your basis. So presuming a money-market ETF invests in private debt instruments, they are taxable as income at the Federal and state level.
ether wrote:
Wed Mar 29, 2023 5:40 pm
This doesn't seem tax advantageous since stock dividends are taxed as long term capital gains if held for a while.
It can happen that the overall level of tax one pays on bond interest is less than that on stock dividends or capital gains. For example, you can be within the zero Federal tax bracket, but above it at the state level, resulting in having to pay state tax on dividends and cap gains.

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