Corporate Bond Funds and Taxes

Corporate bond funds can be a solid investment if used correctly. Investing in corporate bond funds can be a great way to produce an income stream for yourself over the long-term. However, before you invest, you need to understand the tax implications that are involved.

Dividends

With a corporate bond fund, you will receive a regular monthly payment from the dividends that were received from the bonds. A bond is a debt instrument that is issued by a corporation and pays the investor a certain amount of interest every month. With a bond fund, you will be the partial owner of thousands of different bonds and be entitled to a portion of each interest payment. When you receive the dividends, you will have to pay taxes on them at your regular marginal tax rate. Therefore, the rate that you pay will depend on how much money you make overall.

Capital Gains

Corporate bond funds can raise or lower in value over time. Interest rate fluctuations can change the value of a bond fund. If you realize a capital gains on your shares, you will have to pay taxes at the capital gains' tax rate. This could be true whether you actually receive money from the fund or if it is kept in the fund.

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