How To Pay $0 Tax in Early Retirement

Paying $0 Tax in Early Retirement

Disclaimer: this article is for informational purposes only, and should NOT be taken as legal, financial, or tax advice.

My wife and I have paid $0 in taxes from 2021 to 2023. 

But we didn’t cheat. 

And we’re not scamming the government.

The tax code favors early retirees.

Here is how anyone can do it:

1. Keep Income Low

It’s pretty easy to keep income low in early retirement -> don’t work

However, many early retirees do work and earn in some capacity on either side projects, real estate rentals, one-off consulting gigs, etc.

It’s good to be productive, and in the case of taxes, it is beneficial to a point –> just make sure that you keep earned income at or below the standard deduction of $13,850 (single) or $27,7000 (married).

2. Run a Small Business 

My niche website makes JUST enough money that I can use the “above the line” self-employment premiums deduction.

This means that my healthcare premiums directly lower my income.

Small business owners may also utilize additional deductions including QBI and/or Home Office Deductions.

3. Stay In 0% Long-Term Capital Gains Bracket

You don’t get to retire early without having a good-sized taxable account that you’ll be living off of.

As such, you are going to need to sell off a small portion of your investments each year.

But in doing so, you will incur long-term capital gains taxes.

Thankfully, in 2023 the 0% bracket is $0-44,625 (singles) and $0-89,250 (married).

So that means as long as you keep our long-term capital gains (LTCG) under $89,250, you will pay $0 in taxes.

4. Keep Dividends to a Minimum

The irony for all the dividend bros out there is that this can work AGAINST you in early retirement:

  • you don’t want ordinary (or non-qualified) dividends as they are taxed as earned income
  • qualified dividends are better, but they still count toward your LTCG totals

While we do live off our dividends, you want to be extremely careful here not to go over the 0% tax bracket and/or end up with too many non-qualified dividends that will be taxed as earned income.

5. Live Off Cash

In early retirement living off cash gives you tremendous flexibility

With cash, you do not need to sell off any assets or take any untimely capital gains.

While you will still want to do some tax harvesting (see below), when you live off cash, you don’t pay tax!

6. Have Children!

Seriously. Have them! 

The Child Tax Credit is worth up to $2,000 per qualifying dependent under the age of 17. 

This is a nonrefundable credit that offsets your tax bill dollar for dollar.

The real benefit here is that children give you more room to earn more money without having to pay taxes (up to a point).

7. Use a Heath Savings Account

As an early retiree, you probably already are using a marketplace plan.

By choosing a high-deductible plan with an HSA, you can now contribute $4,150 (single) and $8,300 (married).

HSAs are truly the best investment vehicle for anyone out there as it helps to dollar-for-dollar lower your income and produces huge tax savings – this and all the while allowing your money to grow tax-free!

8. Year-End Tax Planning

For this, I use both TaxCaster and a CPA.

After Year-End Tax Planning, I am now armed with the following info:

  • whether to harvest tax gains or losses
  • if I should make any further donations
  • if I can make any more IRA/ROTH, HSA, or 529 contributions
  • or if I qualify for state tax credits

This allows me to ensure that I can target $0 in taxes without making any seemingly minor mistakes that will cost me later.

9. Tax-Gain Harvesting in the 0% Bracket

After, tax planning, I know how much room I have to spare for harvesting gains at $0 tax.

Tax-gain harvesting involves selling long-term investments that have appreciated in value, to either offset capital losses or take advantage of lower tax rates.

But the great part about tax-gain harvesting is that the wash sale rule, doesn’t apply.

And because of the standard deduction, with no other income, you can even go above the “limit” to give you up to $58,475 (single) or $116,950 (married) in the 0% bracket.

Here are Step by Step Instructions on Tax-Gain Harvesting.

10. Tax-Loss Harvesting

Tax-loss Harvesting is similar to Tax-Gain harvesting, but in this case there are a couple of things you can do here:

a) you can harvest straight losses up to $3,000 per year (or more which will be carried over)


b) you can use losses to offset gains. Example: sell; $10,000 loss, while also selling $10,000 gain to pay $0 in taxes.

I typically use option b), though in 2022, I did manage to take some additional short-term losses that I am carrying over.

11. Utilize State Tax Credits

Finally, even after all of this careful planning, you may still owe state taxes.

So you’ll want to check your state’s tax credits. 

In AZ, we have 1:1 qualifying charitable contribution that directly lowers your tax bill for each dollar donated

Example: Owe $200 in taxes, donate $200 instead.

So while I am technically paying something here, I can at least direct it to a worthy cause rather than the government.

Each state is unique, so check with your state’s Department of Revenue.

Putting It Altogether: $0 Tax Return Example

Ok, so now that you’re armed with that information, let’s look at a real-life example of what this might look like on a tax return.

Here is a hypothetical tax return for an early retired married couple filing jointly who has two kids:

As you can see, this couple has an Adjusted Gross Income of $88,900, but because a majority of their income was $80K in long-term capital gains, combined with the standard deduction, they only owe $3,500 before credits.

Because they owned a profitable business and had non-qualified dividends, they were able to utilize a Health Savings Account AND the Self-Employment Health Insurance Deduction to further lower their income and taxes.

And finally, because they have children, they recoup all of their $3,500 taxes owed by using the Child Tax Credit.


Tax-law can make your eyes glaze over, but with careful planning, I have been able to pay $0 in taxes the past few years.

Of course some years it won’t work out as you could simply make too much money. But that is a good problem right?!?

Some people may be mad that we pay $0 in taxes, but just remember that over our careers, we’ve paid close to $1M in total! 

I am NOT against paying taxes, but the cold hard truth is that tax law favors investors and retirees.

* A special thanks to The Crunch who fact-checked the thread and article for me! *

** Apologies if my math doesn’t math exactly. The above example is for informational purposes only, so you can see how this generally works when you live off capital gains and dividends and run a small business.**

Disclaimer: this article is for informational purposes only, and should NOT be taken as legal, financial, or tax advice.

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