2020 was our 8th 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.
Do these optimization efforts actually work? Let’s find out.
2020 was an interesting year in many ways including all things taxes… I mean, we paid $0 in income tax (again) on ~$143k income.
This was in part because dividends and blog revenue were lower due to COVID-19, which is a bummer. But it is also because we welcomed another child tax credit into the family, which is nice. Plus, he’s kinda cute.
But that’s not all… for all of you tax aficionados, this year’s tax return offers some good examples of both short and long term tax minimization, including use of the Foreign Earned Income Exclusion, the Child Tax Credit (with phase out), capital gain harvesting, Roth conversions, the Foreign Tax Credit (on International equities), and more.
Let’s explore, shall we?
We have been living off our portfolio for over 8 years now, since late 2012.
For the 1st 6 years I 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 most of those bonds to buy stock and increase our cash cushion.
Now, this is what our portfolio looks like in 2021.
Classic Double Double (photo from In-N-Out Burger)
Every time we are in California I have to make a stop at In-N-Out Burger for a Double Double (protein style.)
Even after that time I threw up a Double Double and chocolate milkshake out my nose, I still love them. (Can’t say the same for Jack Daniels…)
Similarly, every time I enter my tax preparation state I have to check on our investment portfolio…
I can say without a doubt, the only thing better than Double Beef is Double Dollars.
Sometime soon the American Rescue Plan Act of 2021 will become law. (See text of House bill H.R. 1319)
With a cost of $1.9 trillion it roughly matches the price tag of the Tax Cuts and Jobs Act of 2017 and the CARES Act of 2019. That’s big.
It even has some big claims, like “Will cut childhood poverty in half.” That seems good.
So… Where does all that money go? And… How will this impact retirees and aspiring retirees?
2020 was our 8th full year of “retirement.” While much of the world seemed a bit more chaotic than usual, we were fortunate to be largely sheltered from any abnormality.
We had a pretty good year – we started with a big ski trip to Japan (Jr’s 1st), traveled a bunch locally, had a baby, and joined a country club. We also upscaled our housing, our taxes, and our domestic staff.
These things were not inexpensive, but even so our spending was no higher than our most profligate travel years (just 3x our 1st year.)
