2025 Tax Planning
How I Earned $135,864 and Paid $0 in Federal Income Tax
Note: It’s only December 21st, so technically these numbers could change slightly in the next ten days, but they should be close to the actuals.
I earned $135,864 in 2025 and will pay exactly zero dollars in federal income tax.
This isn’t a clickbait headline. It’s the mathematical reality of post-FIRE tax planning, and it demonstrates why retired life costs less than most people calculate during their accumulation years.
Here’s how the numbers worked, why this strategy matters, and what it reveals about the true cost of financial independence.
The Income Breakdown
My 2025 income came from four sources:
$26,550 in consulting income (ordinary income)
$6,411 in short-term capital gains (taxed as ordinary income)
$12,000 in qualified dividends
$90,904 in long-term capital gains
Total: $135,864
If this were all W-2 income, I’d owe roughly $16,000 in federal taxes. But income composition matters enormously in retirement, and this mix changes everything.
The Deduction Stack
Before any income gets taxed, deductions reduce what’s actually taxable:
$30,000 standard deduction (married filing jointly)
$8,550 HSA contribution
$5,310 Qualified Business Income (QBI) deduction
The QBI deduction is relatively new and applies to pass-through business income like my consulting work. I won’t explain it in detail here. Just know it’s available if you have self-employment or small business income.
Total deductions: $43,860
This matters because my ordinary income ($26,550 consulting + $6,411 short-term gains = $32,961) is completely eliminated by these deductions. I have $10,899 of deductions left over, which reduces my taxable income further.
My taxable income: $92,005
The 0% Long-Term Capital Gains Bracket
Here’s where post-FIRE tax planning diverges entirely from W-2 worker logic.
Long-term capital gains and qualified dividends aren’t taxed like ordinary income. Instead, they receive preferential treatment through separate brackets. For 2025, married couples filing jointly pay 0% tax on long-term capital gains and qualified dividends up to $96,700 of taxable income.
My taxable income is $92,005. I’m $4,695 below the threshold.
This means my $90,904 in long-term capital gains and $12,000 in qualified dividends ($102,904 total) are taxed at 0%. My ordinary income was already eliminated by deductions.
Result: $0 federal income tax on $135,864 earned.
The Strategic Move: Tax Gain Harvesting
The $90,904 in long-term capital gains didn’t happen accidentally. I deliberately sold appreciated index funds to trigger those gains.
This strategy is called tax gain harvesting, the inverse of tax loss harvesting. Instead of selling losers to offset gains, you intentionally realize gains when you know they’ll be taxed at 0%.
Why would I do this? Two reasons:
First, it resets my cost basis permanently. I bought these index funds years ago during my working career. They appreciated substantially but remained unrealized gains: profits on paper but not yet taxed. By selling them in 2025 and immediately repurchasing the same funds, I permanently reset my basis to current market value. If I sell these shares in the future, my taxable gain will be much smaller (or zero if markets remain flat).
Second, it costs me nothing. The 0% bracket exists whether I use it or not. Failing to harvest gains is leaving money on the table or more precisely, leaving basis resets unused.
I’ve been doing this every year since I stopped W-2 employment. Some years I harvest capital gains. Other years I convert Traditional IRA money to Roth status. The goal is always the same: fill the 0% bracket completely without exceeding it.
The Planning Discipline
This required maintaining a spreadsheet throughout 2025.
I tracked my ordinary income, interest, and dividends as they accumulated. I monitored my realized capital gains month by month. Every time consulting income arrived or dividends posted, I updated my projections to estimate where I’d end the year.
The math itself is simple. It’s basic addition and subtraction. But the rules aren’t simple, and mistiming income realization would mean either wasting headroom (leaving the bracket unfilled) or exceeding the threshold and triggering unexpected taxes.
Ideally, you monitor throughout the year, but your actual tax actions should happen in mid to late December. By then, you know your full year’s ordinary income, dividends, and interest with reasonable certainty. You can calculate precisely how much headroom remains and execute capital gains harvesting or Roth conversions to fill it completely.
I didn’t use TurboTax or specialized tax planning software for this. Just Excel. The complexity wasn’t computational; it was staying disciplined about tracking and projecting throughout the year rather than discovering the numbers in January.
Using the Remaining Headroom
I have $4,695 of headroom remaining below the $96,700 threshold. Before December 31st, I’ll convert $4,695 from my Traditional IRA to Roth status, using that last bit of the 0% bracket.
I’ll explain Roth conversion strategy in detail in a future post. For now, just understand that it’s another way to utilize preferential tax treatment when ordinary income is low.
Why This Matters for FIRE Planning
Most people model their retirement tax liability using their current W-2 tax rates. This is fundamentally wrong.
If you’re currently paying 22% or 24% marginal tax rates during accumulation, you assume you’ll pay similar rates in retirement when withdrawing the same absolute income. But post-FIRE life involves primarily capital gains and dividends, not wages. The tax treatment is completely different.
A household living on $100,000 in retirement isn’t taxed like a household earning $100,000 in W-2 income. Depending on income composition and filing status, effective tax rates can drop to 0-10% even on six-figure incomes.
This means post-FIRE life costs less than your accumulation-phase models suggest. You don’t need to replace 100% of your gross income. You need to replace your after-tax spending, and your tax rate drops dramatically when capital gains replace wages.
One important caveat: I live in a state without income tax. Most states tax capital gains at the same rate as ordinary income, which significantly reduces the effectiveness of this strategy. You’d still benefit from the 0% federal bracket, but you’d owe state taxes on the same gains. Your state matters for replicability.
The Limits
This specific year isn’t perfectly repeatable. I’ve now exhausted my unrealized capital gains. Everything I accumulated during my working years has been harvested and basis reset. (Of course, my stocks will continue to appreciate in the future and I will harvest when appropriate, but I no longer have a large backlog to use.)
But the strategy repeats. In future years, I’ll fill the 0% bracket through Roth conversions instead of capital gains harvesting. The mechanism changes, but the principle remains: when ordinary income is low, maximize preferential tax treatment on every dollar up to the threshold.
This only works post-FIRE. During accumulation, your W-2 income likely fills or exceeds the 0% bracket, making this strategy inaccessible. You can’t harvest gains at 0% if your salary alone pushes you into the 15% bracket.
But once you stop working? The math inverts entirely, and six-figure incomes become possible without tax liability.
The planning discipline is worth it.