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Tax Matters
Why You Might Defer Your Gains, Even When Tax Rates Are About to Increase
November 17, 2021
With the current proposals for (and the future expectations of) various tax rate hikes, investors with appreciated portfolios might feel like sailing into a storm and wondering, is it still better to defer gains if tax rates were to increase?
Tax Matters
The Value of Integrating Income and Estate Planning
September 2, 2021
In this post, we discuss challenges of wealth preservation and growth faced by high net worth families. While a family that invests with income tax and estate tax efficiency in mind is more likely to achieve its financial legacy goals, the numerical advantages of tax efficiency are quite striking. In addition, we show that there is a significant value in integrating income tax efficiency and estate tax planning.
Tax Matters
Does Tax Efficiency Just Delay the Tax Burden?
July 28, 2021
We often hear the sentiment that tax-efficient investing just delays the inevitable: Eventually, a day will come when the tax-efficient investor will have to true up on years of deferred taxes. And, with the proposed Biden Tax Plan sending many investors scrambling to plan for higher taxes, we feel that now is as good a time as any to put this long-standing myth to bed.
Tax Matters
Improving Direct Indexing: 130/30 and 150/50 Strategies
July 6, 2021
In this post, we expand on our analysis which studies the tax benefits of a hypothetical tax-aware direct indexing strategy with 1% tracking error.
Tax Matters
Direct Indexing and the Proposed Biden Tax Plan
June 9, 2021
There are two basic ways to invest in a stock market index: you can buy an index fund, or you can directly buy a stock portfolio that tracks the index. If you are a taxable investor, a benefit of the direct approach is that you can harvest losses on individual positions. But how high are those benefits—and what happens to them under the proposed Biden Tax Plan?
Tax Matters
Tax-Efficient Portfolio Transition, or How to Rejuvenate Ossified Equity Portfolios
May 12, 2021
We discuss portfolio transition techniques that could alleviate the tax costs of switching managers for a taxable investor.
Working Paper
The Tax Benefits of Direct Indexing
May 7, 2021
An investor holding a direct indexing portfolio can obtain tax benefits by harvesting losses on individual stock positions. We show that investors with allocations to hedge funds and derivatives are the most likely category of investors to have systematic short-term capital gains in their portfolios and, therefore, benefit the most from losses harvested by direct-indexing strategies. We show how tax benefits are affected by equalizing the tax rate applicable to long-term and short-term capital gains.
Tax Matters
“The Tax Benefits of Separating Alpha from Beta” Wins the 2020 Graham and Dodd Top Paper Award
May 5, 2021
In this paper, we tackle a different practical question: In a world dominated by tax-agnostic managers, how can investors design their tax-agnostic strategy allocations to improve the tax efficiency of their overall investment portfolios?
Journal Article
Limitation on Trader Fund Losses under the CARES Act of 2020
March 3, 2021
We explain how hedge fund investors might be affected by a limitation on excess business losses codified in recent tax legislation. In order to allocate business losses a hedge fund now must be a trader fund. After explaining the relationship between hedge fund losses and business losses, we illustrate with simple examples how the new provisions may affect hedge fund investors.
Perspective
Now There's Nothing Certain But Death
January 15, 2021
Over the last few years, we’ve built a considerable effort in tax-optimized investing. Admittedly, this was a little bit of a “if we build it, they will come” venture, given many taxable investors seem to ignore after-tax returns. Thus, it is gratifying to see my AQR colleagues win the Top Graham and Dodd Award for their research on tax optimization, a topic that I’ve long thought deserved a much more prominent place in asset management.