When you are practicing social distancing and self-isolation, finding new pandemic hobbies is one way to keep positive.
One exciting option I used was finding unclaimed assets that were owed to us – 10 minutes of effort yielded $82.20.
Maybe you have some free money out there with your name on it!
My investing career has spanned some incredibly interesting timeframes – the Internet bubble burst of 2000, the Great Financial Crisis of 2008, the beginning of the COVID-19 pandemic… each unique, but with one strong commonality – in every one of them I lost what felt like a great deal of money.
But this time it truly is different in one regard… this is the first time I’ve been able to say,
“Huh, so that’s what it feels like to lose one million dollars.”
(GCC: A few months ago, today’s guest post author reached out with the desire to share knowledge about a unique option to accelerate early retirement. Thanks to a deferred compensation plan, this post was written between retirement activities in a sunny zero income tax State. Maybe this is also an option for you…)
Does your financial freedom plan include maximizing both earning and savings? Mine did, but one of the challenges with this approach was higher marginal taxes. I discovered the (GCC: subjectively) brilliant Go Curry Cracker tax avoidance strategies years ago, but filing a 1040 with a $0 federal income tax liability was impossible as my earned income increased.
My income soared as I advanced my career, and the typical tax deduction tools were already maximized. Deductions (itemized or standard), exemptions (when they existed prior to 2018), credits (usually child and foreign tax), and cafeteria plan elections (those employer deductions like 401(k)s, HSAs, health insurance premiums, etc.) shielded less and less income from taxation. As income is subject to higher marginal tax rates, the IRS adds insult to injury by phasing out IRA contribution deductibility.
If you’re earning enough to lose this benefit, your earnings are AT LEAST into the 22% tax bracket! Imagine paying an extra $1,320+ to the IRS just because you can’t deduct a $6,000 IRA contribution. Your employer giveth, and the IRS taketh… Maybe the average high earner brushes it off as a “death and taxes” situation, but if you’re aligned with the Go Curry Cracker approach to taxes you find this unacceptable.
I did too, and now you may be thinking, “there must be a way to be a highly compensated employee AND have an IRA tax deduction.” Not only is it possible, but you can also shield even more money from your taxable income. I just “stumbled” into a savings plan that allows this, but maybe some of you GCC readers can more purposely take advantage of this.
Enter the NQDCP…
2019 was our 7th full year of this thing we do. It’s been an incredible ride – we’ve traveled, adventured, and procreated, with the best yet to come.
We’ve also done a fair amount of tax optimization, paying little tax each year while taking steps to minimize future taxes. How effective have we been with our tax optimization strategery?
Do these optimization efforts actually work, or is this just fantasy? (Caught in a landslide, no escape from reality…)
2019 was our 2nd tax year under the Tax Cuts and Jobs Act (TCJA), 3rd year using the Foreign Earned Income Exclusion (FEIE), and 7th year of paying ~$0 in income tax on dividends, interest income, and blog revenue.
But… this year I also realized a massive long-term capital gain which resulted in a massive tax bill.
Our 2019 tax return has some good examples of the FEIE, the long-term benefits of capital gain harvesting, and tax and travel hacking synergies.
Here are all the fun details.
We have been living off our portfolio since late 2012. Along the way I’ve made only minor adjustments – annual rebalancing, minimizing long-term taxes with capital gain harvests and Roth conversions, and adding the occasional small chunk of fresh capital as blog income allowed.
But after ~7 years of the stock market trending upward, and the conscious decision to spend more, in early 2019 we took some money off the table (sold stocks / bought bonds.)
When literally everything went to hell due to COVID-19, we sold some of those bonds to buy stock and increase our cash cushion..
After all of that… This is what our portfolio looks like in 2020.
