September 10, 2021

Tax Moves for Your Portfolio, Even if Tax Rates Change

By Michael McKeown, CFA, CPA - Chief Investment Officer

Tax Moves for Your Portfolio, Even if Tax Rates Change

There are several proposals for increases in tax rates. These include a bump higher in ordinary income rates from 37% to 39.6%. A second part is higher long-term capital gains for those making more than $1 million in income. Changes in estate tax rates, exemptions, and a step-up in basis rules are also on the table.

It is still unclear if there will even be an increase.  Most strategists do not believe rates will increase to the top end of the proposals.

Even if the proposals come to pass, there are several approaches investors can take to make portfolios more tax efficient.

1. Direct Indexing

This strategy is useful if you have a portfolio of stocks from active managers that follow a particular index. Another implementation is having a concentrated stock position in a sector that you want to avoid in the rest of your portfolio.

  1. Generate taxable losses. Use those taxable losses to offset gains elsewhere in the portfolio.
  2. Track the index of your choosing closely, such as the S&P 500 Index, or even international or small cap indices.
  3. This will lower the fees from active strategies that are not consistently generating excess returns.

2. Asset Location

Implement this approach when you have assets in different types of accounts, from taxable trusts and individual accounts, Roth IRAs, and traditional IRAs.

  1. Locate higher-yielding assets in traditional IRAs.
  2. Locate high-growth assets in Roth IRAs.
  3. Hold tax-efficient assets like equity ETFs (exchange traded funds) in taxable accounts.

3. Qualified Opportunity Zone Fund

Consider these when you have a big gain from selling a stock, fund, or business. This allows you to jumpstart a private real estate investment program. The benefits include:

  1. Ability to delay paying capital gains tax until 2026.
  2. Decreased capital gains liability by 10%.
  3. No tax owed on Opportunity Zone Fund investment if held for 10 years or more.

These are just a few of the strategies we use when aligning a client’s financial plan with a tax-efficient investment portfolio.

Important Disclosure Information

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Marcum Wealth, or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Marcum Wealth. Please remember to contact Marcum Wealth, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Marcum Wealth is neither a law Firm, nor a certified public accounting Firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of the Marcum Wealth’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request. Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your Marcum account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Marcum accounts; and, (3) a description of each comparative benchmark/index is available upon request.