Building a Tax-Efficient Portfolio: Tips for Accredited Investors Looking Beyond Stocks and Bonds
With alternative assets projected to grow from $5.3 trillion a decade ago to $24 trillion by 2026, accredited investors are increasingly exploring these opportunities to enhance portfolio efficiency and reduce tax liability.
Why Tax Efficiency Matters
High-income investors often face steep tax rates, eating into returns. By prioritizing tax efficiency, you can keep more of your earnings to build long-term wealth.
Tax-Advantaged Alternative Assets to Consider
Real Estate and REITs: Depreciation can allow you to offset taxable income, reducing the taxes owed on rental income or dividends.
Qualified Opportunity Zones (QOZs): Reinvesting capital gains into QOZ projects can defer taxes and potentially eliminate gains on appreciation.
Private Equity: Pass-through entities in private equity deals can reduce your taxable income by passing income and deductions directly to you.
Small Business Finance Notes: Adding these to tax-deferred accounts, like a 401(k), enables compounding growth without immediate tax deductions.
Strategies for Tax-Efficient Portfolios
- Try placing high-yield investments in tax-advantaged accounts and growth-focused assets in taxable accounts to leverage lower long-term capital gains rates.
- You can use tax-loss harvesting to offset gains with your underperforming investments.
Avoiding Common Mistakes
- Overlooking holding periods: Short-term gains are taxed at higher rates. Holding investments longer can lower your tax burden.
- Ignoring compliance rules: Missing IRS regulations, such as QOZ holding periods, can forfeit significant tax benefits.
By strategically incorporating alternative assets, you can build a tax-efficient portfolio tailored to your goals.
Ready to optimize your portfolio? Take our free quiz to find the best tax-advantaged assets for your strategy!
