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The Best Tax-Efficient Funds - Part II

May 02, 2019 8:00 AM ETEXG27 Comments


  • This is the second in what we are now making a bi-monthly series of reports that look at after-tax yield.
  • We will be launching a tax sensitive portfolio / list for members to use in their non-qualified accounts.
  • We take a closer look at EXG.
  • This idea was discussed in more depth with members of my private investing community, Yield Hunting: Alt Inc Opps. Start your free trial today »

This report was issued to our marketplace members at Yield Hunting on April 22.

This is the second in a series of reports looking at yield that comes from the most tax-efficient sources. After all, the saying goes, it's not what you make, it's what you keep.

Asset location is very important when constructing a portfolio. In an ideal world, we would place our equities, munis and other favorably-taxed funds into our non-qualified bucket while placing our bonds and other securities that pay taxable interest at ordinary income into our qualified buckets.

The May monthly newsletter will be primarily driven toward asset location and structuring portfolios for tax efficiency.

In our first report, we discussed what a qualified dividend was and how the lower rate can be helpful for investors. The most significant difference is that non-qualified dividends are taxed at ordinary income rates, while qualified dividends receive more favorable tax treatment by being taxed at capital gains rates.

Today, we will discuss rule 199A.

From the Journal of Accountancy:

Sec. 199A was enacted on Dec. 22, 2017, as part of the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97. It provides a deduction of up to 20% of income from a domestic trade or business operated as a sole proprietorship or through a partnership or S corporation, trust, or estate, for tax years beginning after Dec. 31, 2017, and ending before Jan. 1, 2026. The Sec. 199A deduction replaces the now-repealed Sec. 199 domestic production activities deduction.

The new deduction was enacted to provide tax relief to small businesses that do not operate as C corporations, because C corporation tax rates were significantly reduced under the TCJA, from graduated rates with a top rate of 35% to a flat rate of 21%. Unlike the qualified business income (QBI) deduction, the corporate rate

This article was written by

Alpha Gen Capital profile picture
Targeting 8+% Income Stream using CEFs, ETFs, Munis, Preferreds and REITs
Yield Hunting: Alternative Income Opportunities is a premium service dedicated to income investors who are searching for yield without the high risk of the equity market. We are one of the top experts in closed-end funds ("CEFs") in the country having spoken at many national conferences on how to incorporate CEFs into client portfolios. We manage four portfolios that investors can follow:

- YH Core Income Portfolio: yield ~8%
- YH Flexible Income Portfolio: yield 7.53%
- YH Taxable Core Portfolio: yield 5.24% (some tax free)
- YH Financial Advisor Model

Plus: Muni CEF Shopping List.

Our team includes:

1) Alpha Gen Capital - I am a former financial advisor and investor. Not someone from another career doing this on the side. My analysis is meant to provide safe and actionable insight without the fluff or risky ideas of most other letters. My goal is to provide a relatively safer income stream with CEFs and mutual funds. We also help investors learn about investing and how to properly construct a portfolio.

2) George Spritzer - Another career financial guru who runs a registered investment advisor with a specialization in closed-end funds for individuals. George uses the following investment strategies:1) Opportunistic Closed-end fund investing: Buy CEFs at larger than normal discounts to NAV and sell them when the discounts narrow. 2) Exploit special situations: tender offers, fund terminations, fund activism, rights offerings etc.

3) Landlord Investor- spent his career as a management consultant for public sector clients at a multinational consulting firm in the DC area. He has transitioned to a new career as a full time landlord. His investment portfolio is comprised of two parts -- broad-based index funds and income plays such as preferred stock, CEFs, and REITs. He also owns individual/baby bonds which he buys on margin to boost total return. Landlord is our 'individual preferred stock' expert analyst.


Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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