Pay as little taxes as you can?

[nun]

Move overseas. The feie covers up to 200k in income

Sent from my XT1049 using Early Retirement Forum mobile app

FEIE is only on earned income.......and you are forgetting about local taxes.

 

[mathjak107]

we will have a 6 figure income for a few years and pay very little tax while delaying ss .

we can pull up to 42k from our ira's and pay about 1500 bucks in tax. we can sell equities at zero capital gains , borrow out some life insurance money and never pay it back and use the money already in our taxable account.

had i known i would have moved some cash into overfunding that life policy. all the interest could have been borrowed out tax free with no fees or charges on any over funding.

at some point i may leverage a single premium life policy and instead of leaving my wife a bunch of taxable ira money i will use a portion of the ira and leave her nice clean tax free money with no rmd's. the kids can have what is left in the ira,s and pay the taxes over their lifetime.

in 2014 we sold some very profitable lease rights we held on commercial property by central park.

while heavily taxable we will owe lots of state and local taxes for 2014 most of which will be paid in 2015.

that gives us a big deduction for state and local taxes. typically that would just trigger the amt for us but by controlling our income for 2015 we will be below the amt threshold and will keep all of that deduction intact.

i am working part time for the next 6 months so i doubled up my 401k contributions to get as much income into the 401k as i can reducing its effect on taxable income this year.

we also get a 20% state tax credit on our long term care policy which costs us 8k a year for the two of us.

all in all we should be in good shape tax wise the next few years until i take ss and run out of the cash in our taxable account we set aside.

 

[bad_LNIP]

FEIE is only on earned income......

True. You get a paycheck from a foreign corp. Viola! earned income.

.and you are forgetting about local taxes.

Local taxes? We don't need no stinkin local taxes. Most other countries tax people on ONLY income generated from the local country and income generated from your work for a corporation formed in a different country aren't reported and aren't charged.

 

[nun]

FEIE is only on earned income......

True. You get a paycheck from a foreign corp. Viola! earned income.

.and you are forgetting about local taxes.

Local taxes? We don't need no stinkin local taxes. Most other countries tax people on ONLY income generated from the local country and income generated from your work for a corporation formed in a different country aren't reported and aren't charged.

If you set up your company in a tax haven that doesn't tax your "income" and then manage to move around enough or are resident somewhere where local taxes aren't an issue I can see this working. But it's only a viable option for a small percentage of people. You have to live outside the US and manage your residency so that you are taxed on a remittance rather than an arising basis.....so you better not put down any roots in most European countries, the UK, France etc tax residents on their worldwide income.

 

[bad_LNIP]

So are you saying that if you reside in the US and do work in the US, but get your check from a foreign corporation you can apply the FEIE?

No. You have to move overseas. Stay in the states if you want to pay a bunch in taxes.

 

[nun]

So are you saying that if you reside in the US and do work in the US, but get your check from a foreign corporation you can apply the FEIE?

No. You have to move overseas. Stay in the states if you want to pay a bunch in taxes.

Yes I re-read your posts and edited my post. Still I'd be interested in some practical details like where you'd set up the company and then where you'd live.

 

[bad_LNIP]

Still I'd be interested in some practical details like where you'd set up the company and then where you'd live.

I am kicking around a few different countries, but lets say live in Panama, I work as an employee for a Bermuda corporation that invests in dividend paying stock, preferred stock, closed end funds, etc..and runs a model portfolio with a focus on generating income.

You are the portfolio manager, an employee paid by the corporation, which is not taxed in Panama and not reported to Panama. The wages are exempt from taxes in the US according to the FEIE.

I am less familiar with the European nations, but most countries don't tax for non domestic generated income. I am sure there are ways to make it work in Europe. Ireland springs to mind as a European country that helps with taxation issues.

 

[nun]

Still I'd be interested in some practical details like where you'd set up the company and then where you'd live.

I am kicking around a few different countries, but lets say live in Panama, I work as an employee for a Bermuda corporation that invests in dividend paying stock, preferred stock, closed end funds, etc..and runs a model portfolio with a focus on generating income.

You are the portfolio manager, an employee paid by the corporation, which is not taxed in Panama and not reported to Panama. The wages are exempt from taxes in the US according to the FEIE.

I am less familiar with the European nations, but most countries don't tax for non domestic generated income. I am sure there are ways to make it work in Europe. Ireland springs to mind as a European country that helps with taxation issues.

If you are resident many European countries tax worldwide income, UK and France definitely do. In the UK you can pay 30kGBP a year so that you would not be taxed on overseas income, but you would still be taxed on any money you brought to the UK.

I wonder if PFIC issues would be a problem with the scheme.

 

[Davis65]

I am kind of surprised that no one questions the ethics of spending $200,000 a year, and trying to find ways of enduring that other people pay for the defense of your country and all of the other things the federal government provides. I understand how people object to government waste, but to be that rich and really want to find ways not to contribute at all? Have you no shame? It is people like you who make the flaky, flaky Occupy Movement actually seem credible.

 

[nun]

I am kind of surprised that no one questions the ethics of spending $200,000 a year, and trying to find ways of enduring that other people pay for the defense of your country and all of the other things the federal government provides. I understand how people object to government waste, but to be that rich and really want to find ways not to contribute at all? Have you no shame? It is people like you who make the flaky, flaky Occupy Movement actually seem credible.

I'm as left wing as they come, but I see nothing wrong in following the rules of the tax code. IMHO it's the tax code that is wrong.

Personally I can't imagine spending $200k a year, well I can, but I just don't need to. I could sustain a $100k/year expenditure, but spend $30k a year and pay low taxes without having to think about it much.

 

[pb4uski]

I'm as left wing as they come, but I see nothing wrong in following the rules of the tax code. IMHO it's the tax code that is wrong.

Personally I can't imagine spending $200k a year, well I can, but I just don't need to. I could sustain a $100k/year expenditure, but spend $30k a year and pay low taxes without having to think about it much.

And I'm far to the right of my friend nun, but I totally agree. As Justice Learned Hand once wrote:

Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.

Davis65, are you really suggesting that citizens make voluntary contributions to the government in excess of what they legally owe?

 

[bad_LNIP]

I am kind of surprised that no one questions the ethics of spending $200,000 a year, and trying to find ways of enduring that other people pay for the defense of your country and all of the other things the federal government provides.

I fail to see the ethical dilemma. It has nothing to do with national defense. We spend more than everyone else in the top 10 nations combined on defense.

I understand how people object to government waste, but to be that rich and really want to find ways not to contribute at all?

You have no idea the scope of waste in the government. I've contributed plenty to include several years of my life in the armed forces. Then you have to consider that the IRS gave fraudulent refunds of at least 5B in 2013.

Have you no shame?

Nah.

 

[daylatedollarshort]

Here is my favorite article on how to pay zero taxes, though I don't think we will get to absolute zero this year ourselves:

ROI: How to Avoid Paying Income Taxes - WSJ

Much lower taxes, hobby business expenses, ACA tax credits, college tax credits, and financial aid grant money - that's all in our ER plan. I don't make the tax and financial aid rules, I just follow them.

After reading books like Free Lunch and Perfectly Legal on all the tax breaks available to corporations and the ultra-rich:

http://www.amazon.com/Free-Lunch-Wealthiest-Themselves-Government/dp/1591842484

I don't feel guilty taking advantage of what I can.

 

[FUEGO]

I'm not planning on paying federal income tax for a looooong* time. This year we're getting back a couple thousand dollars (no tax liability, refundable child tax credits). Should be more of the same in the future (at least the no tax liability part).

While working, we managed to get up to $150k in income and pay $150 in tax.

* Unless our portfolio does really well and I amp up the spending significantly. Or age 70 and RMDs kick in.

 

[Options]

Not a good idea to let the tax tail wag the financial dog. Having to pay taxes on retirement income is a (relatively) rich man's problem, and not at all a bad "problem" to have. Taxes in retirement are an area that is broad, complicated and changing all the time. Generally speaking, it's a good idea to defer and delay taxes, but individual circumstances vary greatly. Biggest issue AFAIK is RMD's and SS taxation. Best solution is ROTH conversions up to 15% tax bracket until 70, depending on your circumstances.

I am personally suspect of any avoid-all-taxes scheme. I believe the IRS is, too.

 

[nun]

I'm not planning on paying federal income tax for a looooong* time. This year we're getting back a couple thousand dollars (no tax liability, refundable child tax credits). Should be more of the same in the future (at least the no tax liability part).

While working, we managed to get up to $150k in income and pay $150 in tax.

* Unless our portfolio does really well and I amp up the spending significantly. Or age 70 and RMDs kick in.

I was looking at taxable income under $10k this year and had qualified for Medicaid, but then someone offered me a part time contracting job at $72/hour so now my low tax year is blown. Lucky I didn't cancel my ex employer's health plan.

 

[Davis65]

The question is how hard are you going to work to ensure you don't contribute to the public services from which you benefit? And how proud are you of not paying your share? People like Fuego seem to be happy to take money from other taxpayers, but proud of contributing as little as they can. That means everyone else pays more. If you go out for drinks with your coworkers, do you buy a round, or slip off to to restroom when your turn comes up and hope they don't notice?

 

[MichaelB]

Taking advantage of the tax code is not cheating. Let's be careful to avoid characterizing other forum members - we're all friends here.

 

[papadad111]

For a married couple the feie max is over 200k. Form an investment company and collect a management fee. Qualified dividends are tax free up to 91k or so .

Interesting idea.

 

[Fermion]

Paying zero tax is so last decade.

Now you want to be paying negative tax via ACA subsidies.

Married couple with $500,000 from sale of house put into CD ladder, $1,500,000 investment portfolio in total stock market

Expenses of $60,000 a year.

Dividends, interest, capital gains of $30,000 (0% tax bracket)
Cash draw from CD ladder $30,000 (sale of house was tax free gain)

MAGI $30,000

ACA silver plan subsidy with cost sharing $8,000

Effective tax rate = negative $8,000

 

[nun]

Paying zero tax is so last decade.

Now you want to be paying negative tax via ACA subsidies.

Married couple with $500,000 from sale of house put into CD ladder, $1,500,000 investment portfolio in total stock market

Expenses of $60,000 a year.

Dividends, interest, capital gains of $30,000 (0% tax bracket)
Cash draw from CD ladder $30,000 (sale of house was tax free gain)

MAGI $30,000

ACA silver plan subsidy with cost sharing $8,000

Effective tax rate = negative $8,000

Yeah, I was tempted to keep drawing down my after tax savings to keep my income low and qualify for Medicaid, but give the chance to work 20 hours a week for a few months it was hard to pass up. I end up paying more tax and have to pay for healthcare, but I get some more SS contributions and end up with enough cash to cover another year of spending.

 

[samclem]

Another consideration: It's not just the total taxes paid, but when you pay them. For many people (incl DW and I) paying taxes late in our lives (e.g. after age 80) is going to be a lot less irksome (I think) than paying them now, because our portfolio/spending requirements will be subject to a lot less uncertainty over a 20 year span than a 50 year span. When the finish line is in sight and the "game" won, paying more taxes isn't such a problem.

Since RMD is not activated until age 70 1/2, many folks wish to delay receipt (taxation) of IRA/401(k) proceeds as long as possible. I know that's true for me now that I am 70. I could have withdrawn these proceeds prior to this year, but I had no immediate need for the cash, thus delaying distribution until this year.

But in many cases, delaying those tIRA/401K withdrawals as long as possible ends up producing a higher tax bill. If those RMDs plus SS and other income push the taxpayer into the 25% bracket and he was int he 15% bracket from age 59 to 70, he might have been better off to take money out of the tIRA/401K in those early years, at least up to the top of the 15% bracket.

If you go out for drinks with your coworkers, do you buy a round, or slip off to to restroom when your turn comes up and hope they don't notice?

Totally inappropriate analogy. The government doesn't get money from the voluntary contributions of people who have freely agreed to contribute. Taxes are governed by rules, and failure to obey the rules can result in fines and loss of your liberty (jail time). IMO, the most virtuous path is to obey the rules to the letter, seek every opportunity to take advantage of them, and highlight to the world all the crazy loopholes that exist. That's how bad rules get fixed.

If my acquaintances tied me up, took me to the bar, ordered a lot of drinks, then went through my pockets to pry loose my "fair share", I would not feel obliged to chip in any more. And if there were a law allowing them to do this, I still wouldn't volunteer anything extra.

 

[nun]

But in many cases, delaying those tIRA/401K withdrawals as long as possible ends up producing a higher tax bill. If those RMDs plus SS and other income push the taxpayer into the 25% bracket and he was int he 15% bracket from age 59 to 70, he might have been better off to take money out of the tIRA/401K in those early years, at least up to the top of the 15% bracket.

I have the chance to take my 401a DC account and turn it into a pension that will pay me $20k a year starting at age 55 (that's in 2016). With income from rent and dividends and after deductions I estimate taxable income of $25k. So I actually like it from a tax perspective because it distributes retirement income evenly over my retirement years, gives me a bit of head room to do some IRA to ROTH rollovers up to the 15% tax limit and so maintains 0% on dividends and capital gains and should minimize my RMDs when the time comes to do that.

 

[Andre1969]

Totally inappropriate analogy. The government doesn't get money from the voluntary contributions of people who have freely agreed to contribute. Taxes are governed by rules, and failure to obey the rules can result in fines and loss of your liberty (jail time). IMO, the most virtuous path is to obey the rules to the letter, seek every opportunity to take advantage of them, and highlight to the world all the crazy loopholes that exist. That's how bad rules get fixed.

Oh, they'll still take donations...
Americans donate $8 million to cut national debt - Nov. 20, 2012

 

[Andre1969]

In my case, it's not my plan to totally avoid paying federal taxes when I retire, but there's still a good chance it's I'll pay close to nothing. I only need about $40K to live. But, even if I went with the short form rather than itemize, I'd be able to take a standard deduction of $6300 (single) and personal exemption of $4000. So that only leaves $29,700 to account for.

Well, the 25% tax bracket kicks in at $37,451 for 2015. Qualified dividends and capital gains are taxed at 0% if you're in the 10 and 15% brackets. So, I could make up to $47,751 and not pay any federal tax. Higher, actually, considering some long term capital gains would have a cost basis, so some of that "income" would really be return of capital.

Of course, there are still state and local taxes involved. And real estate taxes. Plus mortgages, and charitable deductions. So, chance are I'll be itemizing, which means an even bigger write off. I'm not sure how health insurance premiums fall into the equation, though. If I'm retired, and paying my full premium, it's considered a medical expense, right? However, don't you expenses for the year have to be more than 7.5% of your income before you can write anything off?

Also, I guess one way of looking at some of these deductions, is that while you're not paying taxes yourself, you're deflecting them to other sources. And in many cases, you're actually paying out much more than you get back in a tax writeoff. For instance, when I write off my mortgage interest deduction, I get back about 33 cents on the dollar (it would be much less once retired). However, that dollar, and many more, are going to the mortgage company, who pays taxes (or finds creative ways to dodge them, itself). That mortgage company keeps people employed, who pay taxes. When I write off my state and local, and property taxes, I'm helping keep government people employed at the state and local levels, and help keeping that government running. I'm paying for schools, roads, and infrastructure at the state and local level. When I make donations to a charity, that helps keep the poor, in some way, off the government dime.

So, if you have a big mortgage, big property tax bill, high state and local taxes, etc, you're still shelling out an awful lot of money, even if it helps you to get out of paying federal taxes.