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We have been very fortunate, also hard working and frugal . Now A and J all had several promotions in the past a few years, and the rental properties are paid off. The tax bills are getting pretty high.

A: making $420K between salary, bonus and his company stocks. J: making $240K between salary, bonus and her company stocks. $280K from rentals. $80K from stock dividends.

The stock portfolio is about $6M including two 401Ks. The real estate is $7M including home, and 3 rental SFH/apartment complexes. $600K cash.

The 401K's are maxed out; all the properties are paid off.

We are in California, USA. Since this is a high housing price location(~$1.5M for 1300sqft home renting for $4000), newly acquired rentals typically have near zero or even negative cash flow. We are thinking of buying more rental properties to offset rental income. Are there some other ways to invest and reduce tax?

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    If you have this much money why are you trying to ask for free advice here, why don't you pay for proper advice from a Financal Advisor (as per your tag)? – user9822 Feb 13 '15 at 21:15
  • I don't understand. Newly acquired rentals are money losers, so you are considering buying some to get rid of some of the excess rental income you are making? How does that even make sense? – Michael Feb 13 '15 at 21:52
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    Make large donations to medical research, it is tax deductible and you don't seem to want spend and enjoy your money anyway. – user9822 Feb 13 '15 at 22:41
  • Seems to make sense to me, @Michael am I missing something? – Preston Feb 15 '15 at 15:13
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There is nothing legal you can do in the United States to avoid the tax burden of income earned as an employee other than offsetting it with pre-tax contributions (which it sounds like you're already doing), making charitable contributions, or incurring investment losses (which is cutting off your nose to spite your face). So that $660K can't be helped.

As for the $80K in stock dividends, you could move those investments into "growth" companies rather than "value" companies. Growth companies are those that pay less in dividends, where the primary increase in wealth occurs only in share price increase. This puts off your tax bill until you finally sell your shares, and (depending on how the tax laws are at that time) your tax bill will be lower on those capital gains than they are currently on these dividends.

Regarding rental income I know nothing, but I think you're entitled to depreciate your property's value over time and count that against the taxes you owe on the rents. And you can deduct all the upkeep expenses. As with employment income, intentionally incurring rental losses to lower your tax bill is not logical: for every dollar you earn, you only have to give about 50 cents to the government, whereas for every dollar you lose, you've lost a dollar.

  • We talked to a few financial advisers from Ameriprise, Edwards/Wells Fargo, etc. I would like to bounce some ideas off. Not to hitch a free ride, but to ask for directions. The rental property concept is that the cash flow is negative, but hopefully the capital appreciation will make that up and grow tax free. – A and J Feb 14 '15 at 0:23
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    Appreciation is tax deferred, not tax free. – JoeTaxpayer Feb 14 '15 at 2:18
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    Capital gains tax is the same as qualified dividends tax, so no saving there, just deferral (and rates may go up). – littleadv Feb 14 '15 at 2:19
  • @littleadv My dividends are typically only about 50% qualified, the rest ordinary. (Perhaps I should look into that ...) – dg99 Feb 16 '15 at 17:41
  • @dg99 unless you trade a lot, most, if not all, your dividends should be qualified. This year I had 99% dividends qualified. – littleadv Feb 16 '15 at 20:54

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