bots2019
Recycles dryer sheets
- Joined
- May 16, 2007
- Messages
- 128
In recent years my wife and I have become subject to AMT. This caused me to run our 2014 taxes both with and without our brokerage account dividend income to understand how our dividend income is impacting our overall tax liability. It turns out we're paying close to 30% effective tax rate on our dividend income due to its interaction with AMT.
I've historically held most of my foreign ETFs in our brokerage account to benefit from the foreign taxes paid, while holding most domestic stocks in tax-sheltered retirement accounts. The problem I'm seeing is that foreign stocks are currently paying higher dividend rates (close to 3% in total), which is increasing our dividend income and thus AMT liability.
Based on a quick review of tax scenarios it looks like I would be better off moving some of the higher dividend-paying foreign holdings to my retirement accounts (thus forgoing the foreign tax credit) and moving some of the lower dividend-paying domestic holdings (ie, small caps and growth) to my brokerage account to reduce overall dividend income. The decrease in dividends (and thus tax liability) appears to be greater than the loss of the foreign tax credit.
In addition to shifting some of my domestic/foreign holdings around, I'm leaning towards increasing my Berkshire and commodity holdings (currently held in brokerage) since they don't throw off dividends.
Has anyone else dealt with this issue? Am I missing anything in my thinking? I'm having a hard time finding foreign ETFs with low dividend yields, which would help.
I've historically held most of my foreign ETFs in our brokerage account to benefit from the foreign taxes paid, while holding most domestic stocks in tax-sheltered retirement accounts. The problem I'm seeing is that foreign stocks are currently paying higher dividend rates (close to 3% in total), which is increasing our dividend income and thus AMT liability.
Based on a quick review of tax scenarios it looks like I would be better off moving some of the higher dividend-paying foreign holdings to my retirement accounts (thus forgoing the foreign tax credit) and moving some of the lower dividend-paying domestic holdings (ie, small caps and growth) to my brokerage account to reduce overall dividend income. The decrease in dividends (and thus tax liability) appears to be greater than the loss of the foreign tax credit.
In addition to shifting some of my domestic/foreign holdings around, I'm leaning towards increasing my Berkshire and commodity holdings (currently held in brokerage) since they don't throw off dividends.
Has anyone else dealt with this issue? Am I missing anything in my thinking? I'm having a hard time finding foreign ETFs with low dividend yields, which would help.