Seven Steps to Pay $0 a Year in Taxes. Legally.

WARNING

These are my personal experiences. To take full advantage you must be living within the United States. Anyone can read this, but countries have different tax codes.

I strongly suggest that you learn your countries codes. Learning how taxes work is the quickest lever for you to pull for financial freedom.

STEP 1 - Land a Legitimate Paying Job

This is where you start. You need to have a real job to take advantage. If you do not have consistent income then you will have a hard time generating cash flow. Level up your life to get there. Without a real job, you will have no tax free money.

White-collar (W-2) jobs are excellent. Most of them will provide a 401K. This is will be your bread and butter.

What to do even better? Land a nice government job with a 457. Some corporations offer it as well. This is the Holy Grail of retirement accounts.

STEP 2 - Slash Spending

You need to cut spending like a madman. Step 2 must be relentless. If you aren’t a millionaire yet, you don’t deserve fancy things anyway.

Make a list of what to cut first. All of these are extreme money and extreme time-wasters: TV/Cable, Starbucks. Dining Out, Fancy Cars, Video Games, Hollywood Propaganda

Be a free man. Sovereign. Hustle instead. Live LEAN. It helps if you are in your 20s but if you are older and you want to retire one day you need to make changes.

No one is entitled to retirement. You have to earn it.

When my wife and I approached Step 2 we have a combined income of 120K. It was hard but we slashed our spending to only 40K per year.

The benefit of this was that we only had to realize 40K per year in salary.

“Realized income” is just another way of saying “taxable income.” The other 80K was punted into retirement accounts. We lived off 40K.

That means we paid $0 dollars in taxes.

How did we do this?

Keep reading.

STEP 3 - Make Babies

This part is fun. It also has great tax benefits. So many financial gurus tell you not to have children. This is downright silly. Not only is this terrible spiritual advice but this is also terrible financial advice. Children are rewarding in EVERY way possible. Do not believe the lies.

Example: If you are married with two kids your first 65K is tax-free. ZERO PERCENT. No strings attached. In the United States, you can have your cake and eat it too. If you are smart.

If you doubt me please read this wonderful article “Tax Planning: 2020 Free Money” by Gerry Born. 

STEP 4 - The 457

Why do I call this the Holy Grail?

1. The primary reason is that it stacks with a 401K and on top of a Traditional IRA. You are essentially given an extra bucket to use. A married couple can potentially stash up to 91K a year tax-free. You basically choose what tax bracket you want to be in.

2. You defer your taxes and can withdraw at ANY age. You do not need to wait until age 60. All you need to do is leave your job then you can access the money penalty-free.

This is ridiculous. I know. And this makes government jobs so much more appealing since they usually offer the 457. 

Once you have a couple million in these accounts you can leave your job at any point. Your 457 can become your emergency fund or a piggy bank.

STEP 5 - The 401K 

This is your basic investment vehicle. Most will only have access to this. So you better use it.

Most employers often match contributions. Always take the match. If not, you are leaving free money on the table.

If you only have access to a 401K you can stash close to 40K. I use my 401K as my secondary retirement vehicle. Anything left over goes into a Traditional IRA.

If you only have access to the 401Ks it will stack with a Traditional IRA. You will be able to stash around 52K. That is a sold amount.

Look, I know there is a lot of advice going around the internet that tells you not invest in your 401Ks.

Bad Guru: You can’t access the money until you 60 years old. Don’t even bother with it. It will be dead money for too much of your life.

WRONG. You can convert a 401K into a little known account called 72T. This will turn your 401K into a massive passive income stream. NO PENALTY.

Who doesn’t like passive income?

Step 6 - Brokerage Accounts

If you are firing on all cylinders this step is for you. Take in mind the Capital Gains rate is 0% for income under 80K.

Since I just told you how to get there. I suggest you fund the account with extra cash.

Get a gift from grandma? Stash it. Sell stuff around the house? Stash it. Unexpected bonus? Stash it.

Do not spend the extra money. Stash the extra money into the after-tax brokerage account. You can also place BIG bets to exploit the 0% rate.

I once paid 0% on a 15K profit trade made in $TQQQ. Tax-free gambling and I get to live in a first-world country.

God Bless America.

Step 7 - Become a Professional Blogger

You legitimately have done NO work and you are rich. All you did was work a “basic” job and you understood how taxes work.

You are living the dream. A married couple can do this in 7 to 10 years.

Potentially you can be a millionaire at age 30. No worries. Living the good life. Now you can blog/podcast all day. This is fun if you love the sound of your voice.

IMPORTANT NOTES

1. Avoid Roth IRAs*

2. Low-ratio funds only (Vanguard/Fidelity)

3. Leave your job if they have bad plans. It isn’t worth it.

BONUS: I know I left off HSA and the Saver’s Tax Credit. STC gives you up to 2K more in credits.

The US Government literally pays you to save.  All of my calculations are extremely conservative.

*Why avoid the Roth?

The problem with the Roth is that you cannot immediately take advantage of the tax breaks. Yes, you do get the gains for free BUT when you are older you will have fewer expenses.

Will you have children or a mortgage when 60? NO

You will need less money, if you are smart