Step 1: File an extension for your 2020 federal taxes and overpay your estimated taxes by a lot.
Step 2: In June, file your taxes and get a large refund.As an added bonus, if you owe a small tax penalty for under withholding, overestimate that tax penalty and pay it.
Step 3: Wait for the IRS to recalculate how much you are suppose to get back
Step 4: In July, receive a letter from the IRS telling you they’ve recalculated refund due, and you overpaid your tax penalty by $19.38, and unfortunately, they cannot send the refund electronically as you requested, but you should receive a refund check in the mail 2-3 weeks from now.
Step 5: In August, receive a letter that says your refund is coming soon, in 2-3 more weeks.
Step 6: In December, receive a letter that says your refund is coming soon, in 2-3 more weeks.
Step 7: In February 2022, receive a new letter that says you refund is coming soon, in 2-3 more weeks.
Step 8: In first week of April, 2022, finally receive your refund for your 2020 federal taxes, which includes the $19.38 extra for overpaying your tax withholding penalty and receive an extra $171.78 @ 2.59% in interest payment from the IRS for taking so long to give you your 2020 tax refund…over a discrepancy of $19.38
[quote=sdrealtor][quote=gzz]I am buying Cal muni bond funds that yield about 5% tax free.
Not risk free but pretty low risk IMO.
They aren’t going to default, but further large rate increases would hurt them.[/quote]
As an inflation hedge?[/quote]
The YTD of one of my CA muni bonds index is pretty much as bad as the S&P 500 this year. And over the past 5 year it’s negative and way worse than the S&P500. One would have been better off just staying in cash.
SDR: my RE, fixed rate mortgage and student loan debt, and stocks are all inflation hedges. I don’t need more. Bond funds are more deflation bets.
Flu: I agree muni bonds have done poorly lately, one source said they had their worst quarter since 1994. That’s why you can get closed end CA funds paying a tax free 4.6-5.2% right now. Roughly like a 10% pretax yield.
In three years if 10 year treasury rates go back to 1%, these bonds will have appreciated by about 20% on top of three years of paying tax free 5% income.
The mini rate spike in 2018 lasted even last time. Peak was 3.2% in 11/18 and bottom was 0.5% in July 2020.
The end of the pandemic stimulus bills and a return to divided government means a huge pullback in inflationary gov spending. Giant state surpluses mean less muni supply. Rich always getting richer means more muni demand.
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