TAX ALPHA

In this conversation on “TAX ALPHA”, Frazer Rice and BRENT SULLIVAN (of TAX ALPHA INSIDER) delve into the complexities of tax awareness in investing, focusing on capital gains, income tax, and various strategies for tax efficiency. They discuss the importance of tax loss harvesting, the challenges of managing concentrated portfolios, and the implications of estate planning. The conversation emphasizes the need for advisors and trustees to understand these strategies to optimize tax outcomes for their clients. https://youtu.be/pCIXFq4YoS0 Outline of Tax Alpha Quick Overview of Tax Rates Ordinary vs Capital Gain (Usually Income vs Asset based taxation)Short Term vs Long Term (Long Term Treatment)(we’ll talk about Estate Later)Federal vs State (Can be important!)Netting Losses/Deductions vs Gains and IncomeOwning assets Taxable vs Non-Taxable vehicles https://open.spotify.com/episode/3uL924aOlPd2hgmC9s7KCI?si=hBS09OKDTd-uHhT8PAj7aA Tax Alpha in stock investing (Universe) Long Only Concentrated Positions Timing – Getting LT Capital Gain treatmentBasis – increasing basis Exchange / 351 Funds to defer and diversifyDramatic foreshadowing with step-up later in estate contextBlind Trusts for political appointees Diversified Positions Passive (Lower Cost, acceptable returns, “lower risk/tracking error”)Active (Now frowned upon – except in the after tax world w/ TLH) Deferral Carve-Outs like QOZ’s Tax Lost Harvesting Owning an index vs owning a sample of the indexBuying Coke and selling pepsiWash RulesLoss Carry ForwardsCapital Losses / Not Ordiany Losses Amplified Tax Loss Harvesting Own the sample of Index ANDBorrow off those holdings to create long and short positions to generate capital losses while having beta of 1 Trends: Pre-Liquidity Event planning Storing Losses for the bulky saleTiming the event(s) to have the losses line up with the gains Pre-Diversification planningPre Death Planning Integrating the Estate Planning with the Income/ Cap Gains Planning Step-UpAvoiding Estate Tax, But Prolonging the Cap Gains Tax exposure (and concentration risk?)Grantor Tax status and he swap powerHow does turbo charged loss creation look in an estate environment?Trustee/ Executor and Fiduciary / Beneficiary risk issues Vehicle evolution FundsSMA’s351 and other ETF vehicles (+/-‘s)PPLI,PPVA How did you develop this expertise? How do we find you? Transcript of Tax Alpha Frazer Rice (00:01.122)Welcome aboard, Brent. Brent Sullivan (00:03.035)Well, happy to be here, Fraser. Frazer Rice (00:04.558)It’s fun to chat in person. I’ve been following it to call a blog I don’t think gives it the proper respect because I think you’re uncovering a lot of great information for advisors like me and wealthy people and other people generally speaking in terms of Really getting going on the tax alpha end of it Let’s start a little bit with some basics because I think you know for someone new to the concept of Being particularly tax aware in terms of investing taxes can be, they’re more than just income tax, that’s for sure. How do you think about it? How do you get your framework around what people are trying to avoid when they’re dealing with their investable portfolios? Brent Sullivan (00:45.723)Yeah, I mean, there are really just a couple of different ways to break it down, but I probably start with the concept of a capital gain as a distinct thing from income tax. so capital gains come in really like four different flavors. There’s short-term capital gains, short-term capital losses, and then long-term capital gains, long-term capital losses. And then these things are different if you have collectibles or other types of instruments too. But the point is here that you’ve got those four quadrants that you’re always sort of operating in. And I think that’s where the management and the prowess around portfolio design, execution, that’s where all of that really comes into play. And the final point I’d make about capital gains versus income is that capital gains is really a planning opportunity. Income is gonna come at you and there’s really not much you can do about it. Strong caveat to that. But capital gains are really about timing. You can accelerate losses, you can defer gains. Frazer Rice (01:37.929)Right. Brent Sullivan (01:45.079)And that’s really the beginning of the conversation when I’m talking with advisors about this usually. I operate in B2B space, I’m not retail facing. And usually that’s where the planning conversation starts. Frazer Rice (01:57.655)So as you sort of step back and help people think about the tax planning aspect of it, for advisors generally speaking, they’re very interested not only in the investment perspective, but the structuring of wealth such that they’re taking advantage of what they can and mitigating that which is destructive, but otherwise not really something they can avoid. If we settle in a little bit on the investment ...