Elite Tax Strategist Playbook

Executive Summary: The Core Philosophy

Our strategy is not a collection of isolated tactics; it is a dynamic, integrated system. It rests on five pillars:

1. Tax-Aware Asset Location: Placing assets in the wrapper (Taxable, Traditional, Roth) that minimizes their specific tax drag, treating liquidity and growth potential as key variables.
2. Tax Rate Arbitrage: Systematically shifting income and gains across time (deferral, acceleration) and character (ordinary vs. LTCG vs. 60/40) to consistently pay the lowest possible rate.
3. AGI & MAGI Management: Actively managing Adjusted Gross Income as a valuable asset, staying below critical phase-out thresholds (NIIT, IRMAA, deduction limits) to avoid punitive "stealth taxes."
4. Basis Management: Relentlessly seeking to increase tax basis through active harvesting, strategic gifting, and engineering the ultimate step-up at death.
5. Entity & Derivative Structuring: Using trusts, partnerships, elections (like §475(f)), and derivative overlays to create bespoke tax environments for specific assets and goals.

1. The Asset Location & Migration Matrix

This is the foundational architecture. The goal is to match asset characteristics with account characteristics and define a clear migration path.

Asset Migration Decision Tree

This tree governs the "rebalancing" of assets between wrappers, primarily via Roth conversions.

2. Quarterly Harvesting & Gain-Harvesting Cadence

This algorithm runs quarterly to systematically improve the basis of your taxable portfolio.

IRS Citations: IRC §1091 (Wash Sale), Treas. Reg. §1.1091-1, IRC §1(h) (Capital Gain Rates), Rev. Rul. 2008-5.

3. Section 1256 & 60/40 Optimization

This is a powerful tool for tax-advantaged leverage, hedging, and tactical returns.

• Core Leverage: We will use E-mini S&P 500 (ES) or Micro (MES) futures to achieve our target 1.5x portfolio leverage. This is superior to Reg-T margin because the implied financing rate is typically lower, and all gains/losses are treated as 60% long-term, 40% short-term, regardless of holding period.
• Hedging & Tactical Overlays: Use broad-based index options (SPX, NDX) and VIX futures/options for portfolio hedging. They also receive 60/40 treatment. This is far better than using single-stock or ETF options (e.g., SPY options), which receive 100% short-term treatment.
• Gain Deferral via Rolling: For profitable futures positions, you can "roll" to a further-out expiration month. While §1256 contracts are marked-to-market at year-end (forcing gain/loss recognition), rolling within the year defers realization until Dec 31st, improving cash flow management. This is not a constructive sale.

Numeric Example:

• Position: You are long 1 ES contract (notional value ~$250k). On Dec 31, your open position has a $20,000 unrealized gain for the year.
• Tax Treatment: You must recognize a $20,000 gain on your tax return.
  • $12,000 (60%) is taxed at your LTCG rate (max 20%). Tax = $2,400.
  • $8,000 (40%) is taxed at your ordinary rate (max 37%). Tax = $2,960.
  • Total Tax = $5,360.
  • If this were a short-term ETF gain, the tax would be $20,000 * 37% = $7,400. The 60/40 treatment saves $2,040.

IRS Citation: IRC §1256.

4. Fixed-Income Tax Alpha

We will treat the fixed-income portfolio not as a passive allocation but as an active tax-arbitrage engine.

• OID & Market Discount Arbitrage:
  • OID Bonds (e.g., STRIPS): Buy exclusively in Traditional IRAs. This avoids the annual accrual of "phantom income" that must be taxed without receiving cash. (IRC §1272).
  • Market Discount Bonds: Buy in the taxable account. Under IRC §1276, you can elect to defer accretion of the discount until the bond is sold or matures. The gain is then recognized as ordinary income. This tax deferral is a powerful advantage. We will actively hunt for bonds that just squeak under the de minimis rule (discount < 0.25% of face value x years to maturity), as this converts the entire discount to a capital gain. (IRC §1278(a)(2)(C)).
• Amortizable Bond Premium: When buying a bond above par in the taxable account, we will elect under IRC §171 to amortize the premium. This creates an annual deduction that offsets the bond's ordinary interest income, effectively converting a portion of your principal into a tax shield.
• TIPS vs. Nominal Treasury Arbitrage: The breakeven inflation rate is the market's implied forecast. We will use our own econometric forecasts. If we project inflation > breakeven, we buy TIPS (inside the Traditional IRA to shield phantom income). If we project inflation < breakeven, we prefer nominal Treasuries.

5. Dynamic Roth Conversion Schedule

This is a multi-variable optimization to "fill" low tax brackets each year, with extreme prejudice before the TCJA sunset.

Numeric Example (2025 - The Year of Aggression)

• Assume: MFJ. Baseline AGI is $150,000. The 24% bracket ends at a projected $415,000 of taxable income. The NIIT threshold is $250,000.
• Action: We ignore the NIIT for this strategic push. We convert $265,000 ($415k - $150k) from Traditional to Roth.
• Tax Cost: The conversion is taxed at 22% and 24%. The tax of ~$60,000 is paid from the taxable account.
• Rationale: We are paying a known 24% tax today to avoid a certain 28% (or higher) tax in the future. This is a guaranteed arbitrage on future tax rates. The NPV is highly positive.

IRS Citations: IRC §408A, 42 U.S.C. §1395r (IRMAA).

6. Real Estate Optimization

Acquisition & Depreciation:

• Immediately perform a cost segregation study on any acquired property.
• We will apply 100% bonus depreciation (phasing down from 2023) to all 5, 7, and 15-year property identified, creating a massive "paper loss" in Year 1 to offset other income.

The "STR Loophole":

• We will focus on short-term rentals (average stay <7 days).
• If you materially participate (>100 hours and more than anyone else), it is not a "rental activity" under §469.
• The losses from bonus depreciation become non-passive and can be deducted against W-2/active income without needing full REPS status.

Exit Strategies:

7. Derivative Overlay for Concentrated Positions

The Problem:

• You own $10M of XYZ corp with a $1M basis.
• Selling creates a $9M taxable gain.
• Shorting the stock is a "constructive sale" under IRC §1259, forcing immediate gain recognition.

The Solution: The "Wide Collar" or Proxy Hedge

Wide Collar:

• Buy a put option and sell a call option on XYZ.
• To avoid a constructive sale, the collar must be wide (e.g., 1-year options, put at 90% of current price, call at 115%).
• This hedges a defined range without triggering tax.

Proxy Hedge with Index Futures:

• To hedge market risk (beta) without running afoul of §1259, we short ES futures against the position.
• Shorting a non-substantially identical position is not a constructive sale.
• You retain the stock's specific risk/reward but hedge the market.

8. Estate-Tax Glide Path

• Pre-2026 (High Exemption):
  • Gift high-growth assets using full $13.61 M exemption into dynasty trust / SLAT.
  • Zeroed-out GRATs for volatile assets to capture appreciation above §7520 rate.
• Post-2026 (Lower Exemption):
  • Shift to step-up maximization for low-basis index funds.
  • Accelerate Roth conversions to neutralize SECURE Act 10-year IRA tax bomb.

9. State-Tax Arbitrage (Domicile Shift)

To be successful, you must demonstrate clear intent to make the new zero-tax state your permanent home. We will execute and document:

1. Physical Presence: Spend >183 days in the new state (e.g., FL, TX, NV).
2. Official Declarations: File a "Declaration of Domicile," update will/trusts, get a new driver's license, and register to vote there.
3. Financial & Personal Nexus: Move primary bank accounts, safe deposit boxes, club memberships, and even items of high sentimental value ("near and dear" items) to the new state.
4. Sever Old Ties: Sell the primary residence in the old state.

10. Compliance Calendar & Audit Defense

Audit Defense: We will maintain a contemporaneous log detailing the strategic intent behind every significant transaction. For complex positions like collars or §721 exchanges, a formal legal opinion memo will be drafted and saved.

Summary KPI Dashboard: Projected Lifetime Impact

This playbook transforms tax from a mandatory expense into a persistent source of alpha, compounding relentlessly over your lifetime and for generations to follow.