Clever or complicated tax strategies eventually perpetuate into regrettable outcomes. The cost doesn’t outweigh the benefit.
The Write-off
We immediately recall the classic Seinfeld episode where Kramer packaged up Jerry’s broken stereo and mailed it back to him since the warranty was no longer valid. According to Kramer sentiment, the damaged stereo would become a write-off to the Post Office after Jerry files a postal claim.
Do you “even know what a write-off is?”
Warner Bros. Pictures cancelled the 2023 release of Coyote vs. Acme for a $30 million tax write-off of the $70 million project as part of their cost-cutting measures after its $43 billion merger with Discovery. Early screening had already earned it a 96% Rotten Tomatoes rating.
Due to the backlash, Warner Bros. reversed course and put it out to bid with outside distributer, Ketchup Entertainment, acquiring the film for $50 million. It’s currently in box offices and the 96% Rotten Tomatoes rating hasn’t blown up into Ketchup yet.
Tax Loss Harvesting
It sounds like a sophisticated maneuver to outsmart the IRS and avoid paying taxes.
Tax loss harvesting is a levered long/short strategy of taking market risk (such as buying an index fund) while generating tax losses to offset capital gains (now or in the future). Capital losses can be carried forward indefinitely into future years until they are fully used.
However, the strategy of continually deferring capital gains tax doesn’t factor in the “psychological costs” of the perpetual generation of unrealized capital gains that you never take. This will continue until you die and pass the funds onto your heirs. It becomes a “financial prison of living poor to die rich” all for the sake of not wanting to pay inevitable taxes.
Evasion Fraud
Texas billionaires Sam and Charles Wyly used a complex network of stock options and offshore trusts in the Isle of Man and Cayman Islands to shield over $1 billion from taxes. A massive SEC and IRS investigation coupled with a 2014 civil fraud conviction caused Sam Wyly to enter bankruptcy.
Charles Wyly died.
In 2019, Sam ultimately reached a $300 million settlement with the IRS to resolve the $3.2B in back taxes, interest and penalties.
A lot of so-called financial advisors and tax experts entice you into thinking that you will pay little-to-no taxes once you reach retirement so that you read their blog post, watch their YouTube video or attend their seminar. Their vaguely described strategies fail to tell you what you really need to know.
Taxes are inevitable no matter how you package them. Aggressive avoidance will incur higher legal and accounting fees to set-up and maintain as well as a higher audit risk.
Federal and State taxes are always deducted from your paycheck. They can also be withheld from your 401(k), IRA and Social Security distributions over a certain threshold unless you live in state that exempts retirement income. Having these taxes withheld before you receive the distribution does not mean you are not paying taxes. Of course, you aren’t physically writing a check or electronically transferring the funds directly to the IRS yourself. It is being transacted on your behalf.
Even RSUs (Restricted Stock Units) are taxed not once but twice, in two separate stages. First when the RSUs vest, the financial custodian will use a “sell-to-cover” method that automatically sells enough shares at the current fair market value to cover income and payroll taxes. When you eventually sell the shares, capital gains tax will be assessed if the sales price is higher than the basis price when you received the RSUs.
The same double taxing is true for any brokerage account investments. Any money you invest there was already taxed through payroll unless you were “gifted money” from your parents or other relative. The federal annual gift tax exclusion for 2026 is $19,000 per recipient. You will be taxed again once you sell any investments at the capital gains tax rate unless you sell at a loss. This is where the tax loss harvesting comes into play.
Since the Federal withholding default rate is a flat 22% for income under $1 million and your actual tax bracket may be higher than the 22%, you may need to make quarterly estimated tax payments directly to the IRS. This is especially true if you also have any of the following:
• Interest and dividends from savings/brokerage accounts
• Capital gains from selling a property
• Rental income or royalties
• Large one-time events (Roth conversions, big IRA withdrawals, business sale, etc.)
• Business or consulting income
The estimated payment rules and penalties are in place not as a punishment but instead as a guide to ensure tax revenue is collected uniformly throughout the year and not all at once. And to prevent many people from unintentionally building up a large tax balance at the end of the year. Although, the IRS does not care that you will be making the estimated payment on your birthday.
There are not many good resources to understand retirement income taxes without the hype. Secure a respected, trusted CPA and avoid the wily taxes.
Estimated Tax Payments for Retirees: Avoid Surprise IRS Tax Bills – Blue Heron CPAs
‘Coyote vs. Acme’ Box Office Blows Up WB’s $30M Write-Off – Animation Magazine
Lessons from Largest U.S. Tax Fraud in U.S. History – Goldberg Segalla