Author Topic: Pay Zero Taxes  (Read 2520 times)


  • 5 O'Clock Shadow
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Pay Zero Taxes
« on: March 12, 2017, 01:48:30 PM »
(Newbie here, please be gentle if I run afoul of any norms or rules.  Thanks in advance. :)

I'm edging into my retirement zone.  My income comes mainly from dividends (largely qualified dividends) and interest.

I have some investments that have (thankfully) appreciated over the years.

I have seen various posts and theories of how to "Pay Zero Taxes".  One oft-cited one here:

Of note to me is the statement: <<Unless that income comes from qualified dividends or long term capital gains.  In this case, a married couple can have $19,500 a year in income AND $70,700 in investment income, TAX FREE (if that isnít a strong signal to not work, I donít know what is.)>>

Obviously the above depends on an individual's specific tax & income situation.

Is there an easy (or only moderately hard) way to calculate how much gain could be taken in a given year and still minimize Federal and State taxes?



  • Magnum Stache
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Re: Pay Zero Taxes
« Reply #1 on: March 12, 2017, 02:29:40 PM »
It's impossible to give a foolproof formula that will work for everyone, because people have different family situations and income sources and tax credit eligibility that can affect their taxes. However if we keep it pretty simple, assume you're an early retiree with no income other than from taxable index funds and Roth conversions, there are a few numbers you need to know.

First: the standard deduction. In 2017, this amount is $12,700 for married couples, $9,350 for head of household, and $6,350 for singles. If you have itemizable deductions in a higher amount than this, you can deduct more.
Next: the personal exemption. This is $4,050 for yourself, your spouse, and each dependent.

The sum of your deductions and exemptions is the amount of tax-free regular income (such as wages, interest, non-qualified dividends, Roth conversions) you can have. A married couple with two kids at home who doesn't itemize would then get $12,700 + ($4,050 x 4) = $28,900 of any type of income free of federal tax, while a single person with no dependents would get $6,350 + $4,050 = $10,400.

On top of this, qualified dividends and long-term gains are tax-free up to the top of the 15% tax bracket. This amount is $37,950 for singles, $50,800 for heads of household, and $75,900 for married joint filers.

Other things like the child tax credit and the foreign tax credit can increase your tax-free income space a bit more.

However you should be aware that if you're buying health insurance through the Obamacare exchanges (while they last), this tax-free income still counts for determining your health insurance subsidies. This means that although the nominal tax rate for this income is 0%, you'll gradually lose your health insurance subsidies by a few cents for each dollar of income.
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  • Walrus Stache
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Re: Pay Zero Taxes
« Reply #2 on: March 12, 2017, 04:25:02 PM »
Is there an easy (or only moderately hard) way to calculate how much gain could be taken in a given year and still minimize Federal and State taxes?

Depends on your definition of "easy (or only moderately hard)." ;)

You can use the Excel Solver to pose the problem with whatever constraints and independent variables you wish.  E.g., using the case study spreadsheet, these solver settings...

...provide the results shown in the table below.  This result is trivial in that one could look up the tax brackets for MFJ to see the solver answer is simply "all QD&LTCG, $6.67 above the top of the 15% bracket."  $6.67 * 15% = $1, the constraint given.

Many states do not give special treatment to dividends and capital gains.  If one cares about state tax effects, a better state tax formula (compared with the one in cell G31) is likely needed.

Other ordinary income (e.g., tIRA distribution)$0$0
Qualified dividends + LTCG$8,059$96,707
Federal Total Income$8,059$96,707
Federal tax$02017 rates, MFJ, stand. ded., 2 exempt.$1
State/City tax$0Guess, using 0.00% * (AGI - Exempt'n)$0
Total income taxes$0$1

Filing Status21=S, 2=MFJ, 3=HOH
# Exemptions2
Adult #1Adult #2
Total Income$96,707
Std. Deduct.$12,700
Act. Deduct.$12,700
1040 Tax$1
AMT adder$0
Saver's credit$0
Tax after n-r credit$1
Child Tax Cred.$0
Net Tax$1


  • Handlebar Stache
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Re: Pay Zero Taxes
« Reply #3 on: March 12, 2017, 06:50:48 PM »
You might collect data from original sources, instead of waiting for it to appear on tax forms.  For example, if you sold stocks or mutual funds during the year, look for an account page "realized gains" to see how it adds up.  You'll still need to determine if each entry is long-term (held 366+ days) or short-term, which have different tax rates.

You can look at interest YTD in your online savings accounts and pro-rate to determine 12 months of interest.  Same with any CDs.  Note I say "online" because most big banks pay almost nothing in interest.

One tricky part comes from dividends before the end of the year.   You could wait until the dividends actually come out, but typically that's in the last 1-2 weeks of the year.  So instead you would need to estimate this based on the current yield of the mutual fund or stock.  For mutual funds you've held 60+ days, the dividends are qualified and taxed like long-term capital gains.


  • 5 O'Clock Shadow
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Re: Pay Zero Taxes
« Reply #4 on: March 13, 2017, 11:56:41 AM »
Thanks for the responses.  (And for being gentle. ;)

I will work on estimates and some excel spreadsheets and see where that takes me.

Thanks again.


  • Handlebar Stache
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Re: Pay Zero Taxes
« Reply #5 on: March 13, 2017, 02:13:38 PM »
This post from a couple of weeks ago might help...

Note that the math of paying zero income taxes appears about two-thirds of the way down the post...
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  • Handlebar Stache
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Re: Pay Zero Taxes
« Reply #6 on: March 18, 2017, 10:41:52 AM »
Wow I'm definitely going to need this information when I'm not earning income anymore and I'll need to start converting 401k money over to Roth.

  • 5 O'Clock Shadow
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Re: Pay Zero Taxes
« Reply #7 on: March 21, 2017, 08:29:43 AM »
If you are married with no kids, and have no other income, this is your math:

Standard deduction:  12,700
Personal Exemptions (2):  8,100
The cut off for the 15% federal tax bracket:  75,900 for married filing jointly.

For 2017, the most you can cash out at 0% is (12,700+8,100+75,900)=  $96,700

Above the 15% federal tax bracket, dividends and capital gains become taxable again.  If you have earned income from work, subtract that income from the $96,700 above.  The remainder is what you can cash out at 0% federal tax.  You may or may not still owe for the state. 

Think of the standard deduction and personal exemptions as your 0% tax bracket.  Dollars earned at these levels are taxed at 0%, even for earned (work income) income. 

Hope that helps. 
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