I am trying to come up with some ideas to reduce taxes paid out per year, I have heard all kinds of ideas and read a lot but none of it will fit my plan. I pay plenty in taxes and its getting real old writing them a check again and again, quarter by quarter. something has to give. Buy a rental property? buy some cattle? what do you guys do to help in this? I would rather take the funds used to pay taxes and reduce debt or reinvest in myself, not in the government.
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I max out my 401K and HSA contributions. Then max out IRA contributions for my wife.
Farm and deductions like that are hard to do, unless you can show a profit after a few years.
You could buy rentals or other tangible assets and put them into their respective LLC's and respective bank accounts. For personal money, I'm looking into taking profit distributions from a 401k/403b (keeping the principal the same) and put that money into appreciating and dividend paying stocks that are in an after-tax IRA account. I think that if your income is 39k or less, you pay no capital gains taxes on the received dividends and you keep the appreciating stocks. You will need to find ways to keep your income below the 39k level for capital gains tax to be 0%. Regardless, even though you may pay income taxes on the initial distributions from the 401k/403b, at least the money will be invested in appreciating stocks and generating profits/income to help make up for the taxes that were paid.
Thinking out loud here.....
Good luck!
It's not what you can take with you,
It's what you leave behind.
Interested also for retirement
MLPs give you some tax advantages but they come with a schedule K1. Municipal bonds are good but they are not yielding much now. Not many places to hide other than 401k etc.
Thanks guys! keep the ideas coming. I max out my 401k, wish I could throw more at it lol
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Anybody ever heard of living off of margin? I hadn't till yesterday. I was watching an interview with a couple TSLA investors. One of them was a "teslanaire" and retired at 39. I assumed as well as the host that the investor would sell a little stock every year to live on. Of course you would then pay long term cap gains tax on the sales. The investor has over 10 million worth of TSLA stock. But he doesn't sell a single share. He lives on the margin. He lives roughly on $100K per year. The interest on margin is 1.6%.
I bring this up because I think he doesn't pay a dime of taxes, he never realizes the gains, and he never pays off the margin until he sells the stock, which he could never sell the stock.
Before you ask, what happens when the stock goes down, the investor said the stock would have to go down 80% for him to get into a problem. He was buying TSLA stock in 2013. He also said he doesn't plan to use more than 50% of available margin. Which gives him a nice cushion.
Can anyone poke some holes into method? Is this a better method than an IRA? I once thought about living off of dividends, but maybe living off of margin of dividend paying stocks is better and the dividends would pay down the margin as time goes on.
I'm gonna start researching
I guess the only problem living off the margin would be if the stock stayed flat or declined but inflation increased causing him the need to sell more stock each year. The other wild card is expenses. If the person had no kids that would be much easier to control.
The method that the investor is using is similar to what the ultra wealthy use when the use many of those family offices in London. They never sell any holdings but borrow against them at low interest rates. The only difference is they usually have diversified holdings rather than one stock.
This was interesting to me
https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/
Originally Posted by wbrown
I feel like this is a much better way of doing things. I wish I had known about this sort of thing many years ago. Sure the 401Ks and IRAs have some tax advantages over regular savings, but margin loans avoid taxes all together, are cheaper than mortgages, and you don't have to pay them back until you want to.
I think the risk grows as this catches on and more and more people do it. (And most probably get greedy and not be as conservative.) Once too many people are on margin then there's a true market collapse risk that gets exacerbated by the fact that the whole nation is getting margin called. And then it's doomsday. And would probably be a targeted scenario by market manipulators.
I took the margin plunge on my 401K. My wife and I are undecided on how best to spend the $500.
Either trip to the beach, or new cornhole boards.
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