(Is it appropriate to discuss finance on this mailing list? If not, perhaps someone can point me to a more appropriate forum.)
It annoys me that the dividend tax has been cut for stocks, but not bonds. So here's a way that you can (legally, I think, but I'm not a lawyer) cut your own tax on bond dividends. The trick is to first convert those dividends into short-term capital gains, and then convert the short-term capital gains into long-term capital gains. This trick also works with stock dividends so keep it in mind in case the stock dividend tax cut is ever rescinded. (For those not familiar with the US tax system, the simplified version is that for most people, bond dividends and short-term capital gains are taxed at 25-33%, while stock dividends and long-term capital gains are taxed at 15%.) The first part is pretty easy. Just sell your bonds before the ex-dividend dates, and buy them back afterwards. This will be easier if you hold your bonds in an exchanged traded mutual fund. For the second part, construct two non-overlapping baskets of stocks, both of which will track the stock market as a whole. Then short one basket and use the proceeds to long the other one. Finally close all positions that have lost money just before one year expires (so they count as short-term capital loses) and close all positions that have gained just after one year expires (so they count as long-term capital gains). The loses and gains should be approximately equal. Now the short-term loses in stocks will cancel out the short-term gains in bonds, and you're left with an overall long-term gain approximately equal to the dividends you would have received. Besides the obvious one of trading costs, does anyone see a problem with this strategy?
