r/AdvancedTaxStrategies

In July 2025, my Dad gave me an irrevocable trust that I'm the trustee of and have total control over. I can choose what to do with it's assets, whether to distribute earnings and/or principle, and whether to distribute all of the assets and close the trust.

The trust initially had somewhere around $1 million and most of that was immediately invested in SP500 stock index. The remainder has been invested over time since then. Total unrealized gains stand at around $200,000. Gains are roughly 25% on the first shares I purchased. Year-to-date dividends amount to around $11,000. The trust tax brackets seem very unfavorable, much worse than personal.

Been working on a startup for over a year now and have not gotten any income and likely won't before year-end. Have no other income. I do have personal investments of around $250k and they've had year-to-date dividends of $3,000.

I proposed a possible strategy to my accountant: We distribute all the dividends due to unfavorable tax brackets and before year-end I sell around $200,000 worth of the first stocks I purchased and immediately repurchase $150,000 of stock. Since it was over 1 year ago and has had 25% gains it would carry ~$50,000 in long-term capital gains. I immediately pass that out to myself as a disbursement to the beneficiary. The dividends from personal plus trust will amount to around $16k so that would fill up my standard deduction, and then the 50k would fill up the 0% long-term capital gains bracket in my personal. Net effect is that stock gets stepped up in bases for no cost except 50k is now in my personal name instead of in the trust so it loses some of the trust protections.

He gave no indication of whether that would work or was smart and said that was a question for a wealth manager and tried to recommend his friend who wants $10,000+ per year. So thought I'd ask you all.

I was working through ESSB 6346 (WA's 9.9% tax on income over $1M, starting 2028) and I think I found a strange edge case. Please check my reading.

• WA already has a capital gains tax: 0% on the first ~$278k of long-term gains, 7% above that, 9.9% over $1M of gains.
• The new income tax is 9.9% on income over $1M (federal AGI, with tweaks).
• To avoid double taxing gains, the bill first removes all long-term gains from your income, then adds back the WA-taxed gain plus the $278k  deduction. See section 302(3) here: https://lawfilesext.leg.wa.gov/biennium/2025-26/Htm/Bills/Session%20Laws/Senate/6346-S.SL.htm

Here is the problem I see. The bill says the add-back "applies only to taxpayers owing tax under chapter 82.87 RCW" (the capital gains tax). So:

• Gain under ~$278k: you owe no capital gains tax, nothing gets added back, so the gain never touches the income tax.
• Gain even $1 over: you owe capital gains tax, so the *whole* gain gets added back, including the first $278k that was previously free.

Example (single filer, $1.2M wages, 2025 deduction figure):

Scenario 1

• Long-term gain: $277,000
• Capital gains tax: $0
• Income tax base: $1,200,000
• Total WA tax: $19,800

Scenario 2

• Long-term gain: $279,000
• Capital gains tax: $70
• Income tax base: $1,479,000
• Total WA tax: $47,421

A $2,000 bigger gain costs about $27,600 more in tax, because 9.9% x $279,000 of extra income suddenly counts. It only affects people whose other income is already over $1M.

Caveats: I'm not a tax pro, this ignores the other credits in the bill, and the tax faces a repeal vote in Nov 2026. I found this while building the rules into a planning calculator, and I checked the wording against the session law text rather than a summary.

Does this match how you read Sec. 302(3)?