Most of our work to both manage and minimize personal tax liability exposure revolves around specific client transactions. For example, in a 1031 tax-deferred property exchange, the client can determine when they will sell their investment property. Similarly, for a Deferred Sales Trust, appreciated assets are being sold through the tax code's strategic use – again, on the seller's timeline. Both scenarios allow the investor to defer their current tax liability while placing the maximum amount of proceeds in constructive use.
Not every investor is as fortunate to say when a liquidity event or transaction will occur. Continued mergers and acquisitions (M&A) activity this year has generated substantial gains for employees of (and investors in) companies to be acquired. For well-tenured employees, their stock's appreciated price often automatically cashes out, leaving them with a significant tax burden. While the investor has little say about when that taxable event occurs, they can strategically use the tax code to reduce their tax bill exposure.
Using only the capital gains, the investor can use a Qualified Opportunity Zone (QOZ) investment to defer today's tax liability. The laws allow the investor to defer those taxes through 2026 - with many QOZ investments projecting income along the way. More importantly, all capital gains from a QOZ investment will be free and clear of future taxes if the investment is held for a minimum of ten years.
If you were fortunate enough to have your holdings increase 30% or more in value overnight on an M&A announcement, you remain in control of your taxes. Advantage Wealth Solutions can help you properly minimize your tax liability. The correct approach may place more of your capital at work and allow you to manage more of your after-tax investment dollars.