Tax Strategies

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  • 1.  How can you effectively manage the impact of taxes on your investments?

    Posted 05-02-2023 00:31
    Edited by DAVE GILMER 05-02-2023 00:33

    First you have to understand everything possible about where the tax on your investments come from and act accordingly very early in your working career.

    a) Has tax already been paid on the front end of an investment by using after-tax money from your "pocket" to buy them?
    b) Is tax paid along the way by dividends or capital gains from investments not in a tax deferred account?
    c) Is tax paid when investments are sold?

    Later in your career you can assess what your retirement taxes might be and what course corrections might be necessary. If you have done well in part 1 above you may not need a course correction.  However, if you do need a course correction it might look like:

    a)  Re-assessing the best time to retire and when to take Social Security and/or pensions.
    b) Determining if Roth conversions are necessary during years with low income when first retired.
    c) Making an estimate of your tax bracket in retirement using 100% of your current budget and factoring in expected pluses and minuses to it.

    Here is a fun fact I discovered recently when exploring this subject:

    In the June 2023 article about a ONE Page Wealth Building plan a couple Tom and Tina write out a written plan for their retirement. Let's say they are both age 70 and starting SS with only a taxable brokerage account and no tax advantaged accounts (traditional IRA or Roth). Wouldn't it be nice to know that for a MFJ couple in 2022 with $64,000 in combined Social Security and $38,706 of qualified dividend income they will be right on the line of paying no tax such that with $10 more of dividend income they will pay $1 tax for $102,716 of income?

    To understand why this is would be easy to do with any tax software that allows you to see the forms which do the calculation, which in this case is the Social Security worksheet.

    I could tell you the answer, but as they say in Texas - "what's the fun in that!"



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    DAVE GILMER
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  • 2.  RE: How can you effectively manage the impact of taxes on your investments?

    Posted 05-18-2023 07:45

    Yes, it would be nice, because they may still have time and vehicles that enable them to shift the dividend income from their taxable account to a tax favored account.  


    In this scenario the additional income increases the portion of their social security that is taxable, and in turn their taxable income exceeds their standard deduction. This subjects the incremental qualified dividends ($10) to a tax rate of 10%, or $1. 



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    NICK INTERDONATO
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  • 3.  RE: How can you effectively manage the impact of taxes on your investments?

    Posted 04-26-2026 17:32

    I was pleasantly surprised this tax-filing season to discover how low our tax bill was for 2025. Now retired, the difference last year was that only 25% of our AGI was from ordinary income. The rest (75%) was from long-term capital gains and qualified dividends. An article in the May 2026 edition of Kiplinger's Retirement Report explains it most succinctly:

    "When the ordinary income portion of one's taxable income (AGI – deductions) is below the threshold ($96,700 MFJ), LT capital gain and qualified dividends are taxed at 0%; until they push you over that threshold." The cover story in the April 2026 issue of the AAII Journal, "Managing the Tax Impact of Capital Gains Stacking" by Charles Roblut, also provides some insight. Incidentally, that threshold for 0% tax on qualified investment income increases to $98,900 in 2026 for MFJ filers.

    The result was that a good portion of investment income was taxed at 0%, even though one's AGI can well exceed the 0% threshold. Given that retirement income, IRA distributions and Roth conversions, etc. are considered ordinary income, they only serve to push one over that threshold. I therefore expect that when RMDs eventually kick in, this lucrative low-tax window (for taxable investment income) will disappear.

    Incidentally, my tax software was of no help determining the source of the tax reduction. My insight came from manually completing the tax worksheet within the Form 1040-SR instructions. These can be downloaded from the IRS web site.


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    Chris Thornton, Retired
    St. Charles, Illinois
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