How This $150B+ Wall Street Strategy Could Lower Your Taxes

**SPEAKER_1** (0:00)
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**Telis Demos** (0:33)
Hi, Miriam.

**Miriam Gottfried** (0:33)
Hi, Telis.

**Telis Demos** (0:34)
So, audience, those of you who know our show know that Miriam recently started covering a new beat, moving from covering the private asset manager world for many years, hundreds of years.

**Miriam Gottfried** (0:47)
It felt like hundreds of years.

**Telis Demos** (0:49)
And has transitioned to covering personal finance, wealth, and kind of focusing on what basically what rich people are doing with their money.

**Miriam Gottfried** (0:58)
And not rich people. And not as rich people.

**Telis Demos** (1:00)
Okay, okay. But for those of us who aspire to have a lot of money, we kind of want to know what people who do have a lot are doing and thinking about when it comes to their wealth. And one thing that you kept hearing about was something called a hot strategy. Everyone was talking about it. It was being discussed. Water coolers around the Tri-State area.
And that was talking about tax efficiency, how to offset your gains that are going to be taxed. And you were hearing about something called tax aware investing and specifically long short tax aware investing.

**Miriam Gottfried** (1:36)
Yeah, I'd been hearing about this strategy, tax aware long short from pretty much every wealth advisor I talked to. And I wanted to figure out how big it had gotten and how it worked. And that search led me to Brent Sullivan. He runs Tax Alpha Insider, which is a publication that focuses on tax strategies for people looking to be the most efficient with taxes in their investing.
He also manages a number of conferences around this subject. And Brent is usually based in Seattle, but today he joins us in our studio here in New York. Welcome, Brent.

**Brent Sullivan** (2:09)
It's a pleasure to be here.

**Miriam Gottfried** (2:11)
So Brent, just for our listeners at home, what is tax aware investing? What is tax management?

**Brent Sullivan** (2:18)
Well, I think about tax management in as three different things. The first one is the thing that you invest in. And so that could be stocks, bonds, real estate, etc.
The second thing is location, where you put the thing. It could be in a taxable brokerage account. It could be in a tax advantaged IRA, Roth IRA. It could be in your estate or out of your estate. So that's where you put the thing. And then the third thing is the timing. And the timing is like if you have a real estate asset and you're depreciating it, or if you have a direct indexing portfolio and you're realizing tax losses and you're deferring taxable gains.
All of those things together. Again, the investment, the location, and then the timing. That, in my mind, everything you can do around those things is tax management.

**Telis Demos** (3:04)
Location, location, location. Works for investing as well as real estate.

**Brent Sullivan** (3:08)
I mean, it's federal, state, estate. Those are your location, location, locations.

**Telis Demos** (3:12)
So, Brent, as most people, I think, are, I'm aware of the idea that tax-aware investing is a smart thing to do. You sell your losers to generate some tax losses, and then that offsets potential future capital gains on your winners. But it sounds like what you guys are talking about is something that is a much more souped up, sophisticated version of that. So, how did you define for Miriam when she called you, what exactly is tax-aware, long, short?
Am I even saving it right?

**Miriam Gottfried** (3:46)
Yeah. Or you could say long, short, tax-aware. You could put that descriptor on either side of the long, short.

**Telis Demos** (3:52)
What the heck is this thing? What is different about that from the kinds of tax-aware investing that I think most people know about?

**Brent Sullivan** (3:57)
Well, so, tax-aware, long, short is really an extension or a combination of two different things. One, it is the direct indexing, individual securities approach to portfolio construction that allows you to sell losers, again, like you said, Telis, bank those losses, store them on the household balance sheet and then deploy them later against capital gains. So you want to net those two. Now, what's new about tax-aware, long, short is that now we're injecting leverage into the portfolio. Leverage comes in two forms. One, it is the margin that you add. So you borrow and then you invest that margin.