Bond Washing

AAA

DEFINITION of 'Bond Washing'

The practice of selling a bond just before it pays a coupon payment and then buying it back once the coupon has been paid. Bond washing results in a tax-free capital gains because after the coupon has been paid, the bond will sell for less.

INVESTOPEDIA EXPLAINS 'Bond Washing'

Bond washing is a method of tax avoidance. In this manner the bond holder avoids paying taxes on the bond coupon income. Because bond washing is a form of tax evasion, whereby buyers and sellers may collude to benefit from tax avoidance, it has been banned, though the practice still exists.

RELATED TERMS
  1. Position

    The amount of a security either owned (which constitutes a long ...
  2. Capital Gains Tax

    A type of tax levied on capital gains incurred by individuals ...
  3. Tax Avoidance

    The use of legal methods to modify an individual's financial ...
  4. Audit

    1. An unbiased examination and evaluation of the financial statements ...
  5. Tax Evasion

    An illegal practice where a person, organization or corporation ...
  6. Treasury Direct

    The online market where investors can purchase federal government ...
Related Articles
  1. To Sell Or Not To Sell
    Retirement

    To Sell Or Not To Sell

  2. Dividend Facts You May Not Know
    Investing Basics

    Dividend Facts You May Not Know

  3. Avoid Tricky Tax Issues On Municipal ...
    Taxes

    Avoid Tricky Tax Issues On Municipal ...

  4. How do I figure out my cost basis on ...
    Investing

    How do I figure out my cost basis on ...

comments powered by Disqus
Hot Definitions
  1. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  2. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  3. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  4. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  5. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  6. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
Trading Center