Creative legal ways of generating tax defered income

[KTP]

Here might be something interesting to chat about and of some use to others beside me. My spouse makes enough money that it is not really finacially viable for me to get a standard job along with all of the related expenses (car, gas, clothes, etc) since it would only pay enough to bump us into AMT territory and by my calculations would then be taxed at over 50% if you include SS and medicare (and I do not believe I will recieve a dime of SS before I retire anyway, because not enough work credits).

So, other than doing the fixing up of the house and cutting costs on groceries, etc. I am looking for interesting ways of generating a little extra retirement income that will not be taxed until we are in a much much lower retirement bracket. This may seem a bit silly, but I still find interesting at least as a thought experiment.

Stipulations:

No major investment needed

Minimal ongoing costs (ie, storage or other monthly fees)

Ruling out self eduction as it would relate to getting a higher paying job in the future because this is meant to be something tangible you could source for income during retirement without getting a job

A few starter ideas ranging from silly to possible:

Metal detecting at parks and beaches - moderate investment, good exercise, easy to sell inventory at retirement

Prospecting - can be cheap initial investment, depends a lot on the area you live in if you have access to public rivers, mines, fields. Unsure if you can generate any significant amount unless lucky

Crafting - create small easily storeable but desireable crafts that will be easy to sell during retirement. The big issue here is you can end up with a storage issue and also difficulty offloading your inventory during retirement in a timely manner.

Salvage - if you happen to have tons of storage space, collecting scrap metals like copper and aluminum could be very lucrative and easy to sell during retirement. As an added benefit, these items actually will increase in value as you store them. Scrap metal is available for free in tons of places if you just know where to look

Website - develop a website and grow it over several years without generating income (somehow....build up a copyrighted database that eventually you can charge for?)

[brandini25]

The website idea is the best in my opinion. The internet is a booming industry right now. I would attack that. Maybe take a class or two in HTML and CSS first however..

[jIM_Ohio]

If you are doing an activity which generates income, the IRS does not consider that income to be tax free.

There is no such thing in tax code (to best of my knowledge) which generates passive income off an active occupation.

[KTP]

So at what point does your "hobby" be forced to be recognized as income?

If I metal detect old coins or relics and hold them for 5 years is that illegal? Am I forced to declare them as income the year I find them?

If I paint pictures for 5 years and then sell them was that illegal? Should I have had to sell them at the end of each year and declare the income? (Be a lot of artists going to jail here...)

At first this whole topic sounds silly, but I could see where a person could have valid concerns. Could you view the items as having a cost basis of zero and then pay capital gains taxes when you sell them?

Oh, just thought of a much more real world example! Stephen King writes 10 books and stores them for a number of years, then sells them. Has he committed tax fraud since his activity is writing? He is basically deferring the income on the books for all of the years he holds them. (not that he would ever be in a lower tax bracket).

[sweeps]

Just because something in your inventory is not sold in the year it was made doesn't mean you don't have to pay taxes on it. Otherwise that would be a HUGE loophole.

If you sell anything at a profit, technically you are supposed to pay taxes on it.

[KTP]

Yes, I know you pay taxes on an item in your inventory when it is sold. But if you keep it in your inventory for a number of years BEFORE selling it, you have defered the taxes, right?

[jIM_Ohio]

KTP- you phrased it better the second or third time you posted. I was confused by the title and first post I guess.

If you "work" to acquire assets then plan to sell them off in retirement, that sounds like a lot of work for being "retired".

I understand your desire to avoid AMT.

Have you looked into real estate? You could probably hide money in property, then sell it while retired, with a much higher income (might not be higher ROI, but total value of selling RE should be higher than selling coins or woodwork.

[KTP]

Yes, I did phrase things a bit convoluted to start. Real estate sounds like a headache, especially if we are out of the country for quite a long time. I think developing a website could lead to a small increase in retirement funds...if the right idea can be found and nurtured.

[jIM_Ohio]

Here's the part I am thinking of- in retirement you want passive income, and plenty of it. If a website were there, you would have effort to maintain it- hardly retired- and probably would not generate more than a thousand a month or so.

Not enough income for the work.

Renting- you can always hire someone to do the work and just deal with the passive income, and in addition you get
a) tax shelter
b) tax writeoffs
c) passive income
d) asset which is appreciating

You sound like you are good at fixing things, so I think you could do a combination of
a) buy a property or two
b) rehab them
c) rent or resell them

I would look for properties close to colleges (where renters are plenty) or other places where renting might be popular (condos close to public transportation...).

If you profit $20k for 3 months worth of work that is a better value (for your time) than looking for coins on a beach or recycling scrap metal.

[wnlbutterfly]

I have been a crafter for close to 20 years and you don't pay taxes on the inventory until you sell it. HOWEVER, this trade is experiencing a slow death. I used to do 15 shows a year (in the fall when DH was laid off). Thankfully his job became full-time about the time things started going downhill.

Started around 9-11-01, sales started dropping, then some crafters quit doing shows, then some of the good shows stopped (they weren't getting enough crafters to fill the booths). Now it is down to a few small shows in the area, with a lot of people mainly window shopping.

80% of my crafting friends have quit. Of course it depends on the area, if you are in a tourist type place you might have better luck. And I am still hopeful maybe it will turn around, but I don't know. You could spend this time honing a craft/art skill and working on items, but just be aware. You could also consider selling online if you do end up with a craft to sell.

There is info at IRS.gov on hobby vs business. There tends to get a little gray in some areas on that.

[onlinev]

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