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Minimizing Taxable Income Over The Next 2-3 Years

LinusP
  |     |   21 posts since 2018

I have some taxable money in mutual funds that I'd like to move to Vanguard in order to simplify my financial life. Now seems like a good time, since my wife is newly unemployed (staying home with baby #1 and pregnant with #2) and my income is unlikely to decrease until retirement. Based on the tax calculations I've done, it seems like I may be able to come in somewhat under the $77,200 joint income below which capital gains aren't taxed. So if I could shift dollars to investments that won't add to my taxable income in the short term, those net me an extra 15% return (or allow me to sell all of those mutual fund shares in fewer tax years).

Does that mean I should think about moving my savings, money market, and CDs to municipal bonds (VCTXX, say, because there's no federal tax) and/or I-bonds (because taxes can be deferred until redemption), at least for the 2-3 tax years that I'll be looking to minimize taxable income?

Thanks for any advice...

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me1004
  |     |   1,381 posts since 2010
You can alternately look into doing it as a "like kind exchange," IRS form 8824, and so avoid any tax on the capital gains at this time.

If you were filthy rich, you would already know all about this and so avoid much of your taxes for life -- and complain about high taxes all the way to the bank, or should I say all the way to your capital assets.
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LinusP
  |     |   21 posts since 2018
Yeah, clearly I'm not filthy rich if I have a shot at coming in under the taxable income cap for 0% capital gains. The IRS says Like-Kind Exchanges can't be done with "stocks, bonds, notes, [or] other securities", so that won't work for me. Link: https://www.irs.gov/instructions/i8824 Thanks for your response!
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me1004
  |     |   1,381 posts since 2010
Oh, so I see that now. Too bad. I see they even have tightened that rule more for 2018 about what property can get this benefit.

Well, it was worth checking.
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me1004
  |     |   1,381 posts since 2010
Just FYI, I just read and see the like kind exchange rules were not merely tightened "more" under the Trump tax overhaul about what real property can qualify. That is actually when the rules limited the tax benefit to only real estate, not simply tightened the rules on the real estate ones. So, it seems in previous years, my original suggestion might have worked. But as we already have established, it won't work now.

I'm only posting because I did think it had applied to more than simply real estate, and now I see I WAS correct -- "was," as applied to the past, it just isn't correct under the new rules.
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Bozo
  |     |   1,375 posts since 2011
Domestic corporations issue what are known as "qualified dividends" (QDIVs). For years and years, our family trust held the poster child for QDIVs, Stanley Black & Decker (SWK). Never paid a dime in tax on those dividends, state or federal. I'm not suggesting you rush right out and buy SWK; just explore the concept of QDIVs, and see if it might be an option for you.
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LinusP
  |     |   21 posts since 2018
My understanding is that Qualified Dividends are dividends that meet criteria to be taxed at the long-term capital gains rate, rather than the normal income tax rate. That rate is 0% for individuals with up to $38,600 taxable income, married couples filing jointly with up to $77,200 taxable income...and trusts with up to $2600 taxable income. So the more dividends I have, regardless of how qualified they are, the less 'space' I've got under $77,200 that I can use to sell those taxable mutual funds (or the fewer tax years it will take me to sell it all without paying capital gains).
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me1004
  |     |   1,381 posts since 2010
Yes. And be happy you can file as joint couple. Imagine if you could only file as a single, and how low your income would have to be to get that no-tax benefit -- singles get seriously screwed, get taxed more heavily.
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