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OVERVIEW | PROCESS | PORTFOLIOS | TAX EFFICIENCY

Tax Efficiency


Taxes can impact after-tax returns more than manager alphas or fees, and are an important element in investment strategy evaluation for taxable investors.    We seek to minimize a client’s tax burden through low turnover, deferral of gain-recognition until long-term when possible, and pro-active tax-loss harvesting throughout the year.

The below table illustrates the cost that Federal taxes and a manager’s gain-recognition behavior impose on a 10% before-tax return after the 23.8%* tax on long-term gains and dividends, and 40.8%* tax on short-term gains and interest. The loss to taxes is highest when all gains are realized and short-term (bottom right of table), and minimized as gains are deferred or long-term (upper left of table).


  A 10% Pre-Tax Return, After-Taxes, Becomes:
% Short-Term
% Gains Realized 0% 25% 50% 75% 100%  
25% 9.4% 9.3% 9.2% 9.1% 9.0%  
50% 8.8% 8.6% 8.4% 8.2% 8.0%  
75% 8.2% 7.9% 7.6% 7.3% 6.9%  
100% 7.6% 7.2% 6.8% 6.3% 5.9%  

* Includes 3.8% Medicare surtax.