As you think about your year-long tax concerns, it’s smart to keep the following things in mind.
Try not to make investment decisions just to escape taxes. For instance, just because a municipal bond pays tax-free interest doesn’t mean it will help you meet your financial goals.
Be sure you understand the difference between tax-deferred and tax-exempt investments. Tax-deferred means that you postpone paying taxes on investment earnings until you withdraw them, while tax-exempt means you will not owe federal tax on the earnings.
And finally, don’t overlook any tax savings you’re entitled to.
Income taxes were first introduced by the US government in 1862 to finance the Civil War. They were repealed in 1872, but eventually reenacted under the 16th Amendment of the Constitution in 1913.