Which allows me to pay less tax - cash in checking account vs. mutual fund?

Question

I am transferring $2500 from my checking account to a mutual fund account (Fidelity tax-free money market fund / fidelity floating rate high income fund), since mutual fund at least gives me interest while checking account does not. But is this a smart move? Which form (checking vs. mutual fund) will allow me to pay less tax?

Could you tell me if my assumption below is correct:
(a) Checking account: More money in my checking account WILL NOT make me pay more tax, since income tax has already been deducted from my paychecks.
(b) Mutual fund: More money in my mutual fund account WILL NOT make me pay more tax. However, I will be taxed on the profit that I make from my mutual fund account. For example if I made a 6% profit on my mutual fund. The government will tax me 25% from the 6% that I made as income tax. (How about if I loss money? Will I get more tax refund?)

Answer 1

OK lets assume that you get no (or negligible) interest on your checking account. Would you prefer to have 75% of something (mutual fund) or 100% of nothing (checking account)?

Never let the "tax tail" wag the "commercial dog."

Answer 2

Either way you will be taxed on your interest income at your personal tax rate. Yes, you will probably pay less tax on the savings account, but only because you will have less interest income, which is a bad thing.

You should go with the option that gives you the higher rate of return (the mutual fund) as long as you aren't risk adverse (mutual fund puts principal at risk, savings account does not) and as long as you don't have to access the funds within the next year (some mutual funds have penalties from pulling out early - read the fund prospectus before investing). Keep in mind that there are a whole universe of other investment options (CDs, bonds, etc.) that you haven't touched on but should consider in the context of your investment needs.

Answer 3

Leaving the money in the checking account will result in less taxes. However, the taxes you pay on the interest on the money market fund will be less than the interest earned. Even after subtracting taxes, you will have more money at the end of the year, if you put it in the money market fund.

Answer 4

You said a "tax-free money market". I am not sure what that means, but if you invest in municipal bonds, you won't be taxed on interest from those for federal purposes.

Answer 5

be useful to get receipts or pay with a money order (save the reproduction)! This guy ought to quite say you haven't any longer been paying finished, and use it as a tactic to do away with you, at the same time as getting finished hire! Now, if he's gonna kick you out besides, i might pass away and record him to the IRS. there is possibly a path the place he's finished this in the past. to illustrate, they might spot drops interior the value of hire or strangely low hire.