Every investment you make has a tax consequence. Yet, how you navigate your tax bill should be specific to you. The key is aligning your desired outcome with a specific solution. If you are going to have a healthy relationship with taxes you need to be educated about how they work. In this blog, I am going to demystify taxes. Let's look at the 4 questions you are going to get answered in this blog. How do your investment products affect your taxes? What are capital gains taxes? How is your portfolio income taxed? How does your account type affect your taxes? 4 Tax Questions You Should Understand. 1) How do your investment products affect your taxes?? The first step in understanding tax efficiency is to understand what vehicles are out there and which are tax-efficient. Stocks and bonds are the two ways that you can own an investment. Stock - This is the equity of a company. Bond - This is the debt of a company. They both have their place in a portfolio but let's look at the tax-efficient way to own investments. How can you buy into stocks or bonds? Individual Stocks or Bonds Exchange Traded Funds (ETF's) Mutual Funds There are pros and cons to each of these in how you own them. When we look at taxes we want to own the investment that gives us the most amount of tax control. We want to control these three questions: When we are taxed? What tax rate we are paying? How much in taxes do we owe? The best vehicles for control are individual stocks or ETFs. These investments give us control to compound and avoid taxes, while mutual funds do not. Let's look at a real-world example. Exchange Traded Fund: If you own an ETF in your portfolio the only way you pay taxes is if you decide to sell shares. It doesn't matter if the fund manager buys and sells in the fund. The capital gains stay locked in your investment until you decide to realize gains. Mutual Fund: If you own a mutual fund in your portfolio you pay taxes when the manager buys and sells inside of the fund. This causes capital gain distributions at the end of the year. These are taxes that you cannot control. Tax-efficient investments start with the building blocks. Understand what you own and why you own it. Here is a visual that shows the potential tax drag certain funds can have on your investments. 2) What are Capital Gains taxes? Whether you own stocks or bonds you need to know how you are going to be taxed. An asset you own will be subject to capital gains taxes if you sell it in the future. There are two types of capital gains we need to unpack. Long Term Capital Gains vs Short Term Captial Gains Every asset you own will have fluctuations in the market. You need to understand how you are taxed if you decide to exit or sell an investment. Depending on how long you hold an investment will determine what tax rate you pay. Long Term Capital Gains apply to investments you have held for more than 1 year. Short Term Capital Gains apply to investments you have held for less than 1 year. Now that you know the holding period let's look at the tax rates. Long Term Capital Gains are taxed at capital gains rates. Maximum of 20% Short Term Capital Gains are taxed at ordinary income rates. Maximum of 37% With a 17% difference in tax rate knowing how long you have held an investment is a key to paying less in taxes. *Capital gains can also a net investment income tax of 3.8% for some high earners 3) How is your portfolio income taxed? Everyone loves passive income, including me. The income that you get for truly doing no work. The best passive income I have found is through investing in the stock market. Let's look at the different types of income you can receive. The two types we will unpack are dividends and interest. Dividends - These are payments from holding an equity investment. There are two types of dividends. Qualified Dividends Non-Qualified Dividends They are taxed in two different ways. Qualified dividends are taxed at long-term capital gains rates. Maximum of 20%. Non-qualified dividends are taxed at ordinary income rates. Maximum of 37%. Many factors will determine how a dividend is paid, but the most important thing to remember is that a dividend is qualified based on holding periods. Interest - These are payments from holding a bond investment. There are two types of interest. Taxable Interest Tax-Free Interest Taxable interest is going to be paid when you hold a corporate bond. A corporate bond is when you are holding a liability on a public company. Easy examples of these companies are Apple, Microsoft, and Walmart. All of the interest paid to you will be taxed at ordinary income rates. Tax-free interest is going to be paid when you hold a municipal bond. A municipal bond is when you are holding a liability on a municipality. Your school district needs a new HVAC system so they raise money through a municipal bond. All of the interest paid to you will be tax-free. Getting income from an investment is great, but what matters is what you are keeping. I have seen many clients fall into the "yield trap". This is where they are being paid a high yield only to be paying 50% of it to the IRS. 4) How does your account type affect your taxes? Which account to own investments in can be overwhelming. Although there are many types of accounts there are only 3 ways that can be taxed. Here they are: Tax-Deferred These are investments that receive a tax benefit today but will require you to pay taxes in the future. These are the types of accounts that are tax-deferred. 401(K)'s 403(B)'s IRA's Each of these accounts has its place in financial planning but it is important to remember the pros and cons. The #1 pro is that you will receive a tax benefit today. The #1 con is that these funds will be tied up and can't be used until a certain time or event occurs. Tax-Free These are investments that grow tax-free and they come out tax-free. These are the types of accounts that are tax-free. Roth IRA's Roth 401(K)'s HSA's You are probably thinking what's the catch with these accounts? The #1 pro is that these accounts are tax-free. The #1 con is that these funds are tied up and can't be used until a certain time or event occurs. This is where tax planning comes in handy. Tax-free accounts are all about delayed gratification while tax-deferred accounts get you a present-year benefit. Taxable This is your traditional brokerage account. The account that you will fill up with your savings post-tax. While there is often more talk about retirement accounts, taxable accounts are my favorite. Here is why: Provide instant liquidity Create tax assets for the future Ability to borrow against these funds When you look at your portfolio today do you have diversification in these areas? Managing how much you have in each tax bucket should be a driver in your financial plan. At Moment Private Wealth , we specialize in being financial advisors for athletes and entrepreneurs. For our clients, optimizing investment accounts is critical to ensuring we lower their lifetime tax bill. ------------------------------------------------------------------------------------------------------------------------------ If you are looking for a financial team that can help you get smarter with your money, lower your lifetime tax bill, and coordinate your financial life schedule a call to see if you are a fit. Get in Touch With An Advisor *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.

Sometimes you are good and sometimes you just get lucky. When it comes to money moves one of the luckiest times in my life was when I first got called up to the big leagues. A baby faced 20 year old with more questions than answers. Some opportune guidance from a clubhouse manager ended up saving me serious money in taxes. "Do you know about the MLB 401(k) plan? You should look at contributing to that." That was my first foray into understanding retirement accounts, the tax implications, and how professional athletes can maximize them. In this article, we are going to break down what retirement accounts athlete should consider, the impact they have, and examples of how to maximize them. The Key Points Retirement accounts at their core are relatively simple. You make a contribution and the government gives you either a current year benefit (deferral) or a future year benefit (tax free growth). They do this to encourage families to save for retirement. Athletes retirement accounts at their core are no different but what is different is the tax rate, time frame, and impact those little decisions have. There are four main retirement accounts athletes need to think about: 401(k) - These are company sponsored plans that in 2024 allow you to contribute up to $23,000 pre tax and an additional $43,000 after tax. IRA/Roth IRA - These are individual retirement accounts that allow athletes to contribute up to $7,000 per year. The difference between a traditional IRA and a Roth IRA is the tax benefits. The traditional IRA gives you a current year tax benefit and taxes your money at distribution. The Roth IRA provides no current year tax benefit but provides tax free growth and distributions. SEP IRA - A simplified employee pension IRA or SEP IRA is a retirement account that allows athletes to contribute self employment income or "off the field" income. In 2024, an athlete can contribute 25% of their self employment income with a max contribution of $69,000. Solo 401(k)/Roth Solo 401(k) - Much like the SEP IRA this account is earmarked for self employment income or "off the field" income. Solo 401(k)s have the same contribution limits as traditional 401(k)s mentioned above. In addition, many providers have Roth Solo 401(k) options that provide no current year tax benefit but provide tax free growth and distribution. The Right Mix Understanding the types of accounts available is just step one in this process. Step two and arguable more important is understanding how to properly use these for a professional athlete. At Moment Private Wealth, we specialize in being financial advisors for athletes and are always thinking about the nuances that comes with these accounts. To better articulate how a professional athlete might mix these retirement accounts for maximum impact here is an example: The typical arc for a professional athletes is NIL money, a draft/free agent contract, a free agent deal and a post career plan. In this example we will walk through things to consider and the tax implications at each stage. - NIL Money: When an athlete is making NIL money the two biggest accounts that we often consider at Moment Private Wealth are Roth IRAs and Roth Solo 401(k)s. The reason for this is simple both of these accounts provide the biggest current or future year tax benefit to the athlete. Example: Athlete is earning $100,000 of NIL money. Potential Action: $6,500 Roth IRA contribution and a $23,000 Roth Solo 401(k) contribution. Reasoning: This athlete would be in the 22% marginal tax rate but their effective rate (the rate they actually pay) will be lower. There is a good chance this athlete will be in a higher future tax rate thus us wanting to maximize the future tax benefit (tax free growth) as opposed to the current year tax benefit (deferrals). - Draft/Free Agent Contract When an athlete is signing their draft contract their are three accounts we look most often look at. They are the Roth IRA and 401(k). Example: Athlete signs a contract for $5,000,000. Potential Action: $6,500 "backdoor" Roth IRA contribution and $23,000 401(k) contribution. Reasoning: This athlete would be in the 37% marginal tax rate and their effective tax rate would be in the high 30s as well. This means we would be looking to focus on current year tax benefits. The traditional 401(k) (if offered by the team) provides that current year benefit. The "backdoor" Roth IRA strategy is specific to high income earners and allows us to work around the income limitations usually associated with Roth IRA contributions. - Post Career Plan When an athlete is transitioning from his playing days to post playing we often see a dramatic decrease in their tax rate. This is an opportune time to maximize the structure of retirement accounts. Example: Athlete transitions from a tax rate in the high 30s to a tax rate in the high teens to low 20s. Potential Action: That athlete could look to convert or move money from traditional retirement accounts into Roth retirement accounts. Reasoning: There is a tax consequence when this conversion happens but often the athletes tax rate is at the lowest point in recent memory. This allows an athlete to potential take advantage of decades of tax free growth and distributions in a Roth retirement account. *Note - The above strategies are hyper specific to each individual player and why we always recommend working with a financial advisor for athletes. One that has deep understanding and specific expertise in helping athlete navigates the complexities that come with sports. Professional athletes face a unique career arc of low income to spiked income to low income. It is important that athletes understand the role retirement accounts play in reducing one's lifetime tax bill and increasing wealth creation. At Moment Private Wealth we specialize in being financial advisors for athletes. ------------------------------------------------------------------------------------------------------------------------------ Moment Private Wealth specializes in helping professional athletes and entrepreneurs build and protect wealth. Understanding the nuances of retirement accounts for athletes is at the heart of what we do as financial advisors to athletes and entrepreneurs. Get in Touch With An Advisor *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.

One of the most dangerous times for a pitcher is with two outs and the bases empty. As a pitcher, you have a laser focus on getting the lead-off batter out each inning. If you can do that the chances of a team scoring a run drop to just 16%. If you can get the next guy out the chances of a run crossing home plate drop to less than 7%. That breath you just took thinking, oh I see the big inning isn’t going to happen is when risk comes in. I can remember having two outs and two strikes on a batter only to find myself in a bases-loaded jam within a handful of pitches. While I had done nearly everything right and kept my focus there was still a chance of the big inning. That is the weird part about risk, we know it is out there but we typically only account for the obvious. We wear a seatbelt to protect against an accident. Yet we might not put it on if we are only going thirty seconds in the car. We get an education to make sure we get a good job. Yet we don’t consider that a sweeping layoff could be around the corner. We get regular checkups for our health. Yet we often make unhealthy choices thinking, “That outcome won’t happen to me”. Risk is as much a part of life as it is money management. Today, I want to talk to you about what I have learned about risk, how I approach it today and three things you can do to reduce it in your financial life. A Guide to Seeing the Unforeseen I have been investing for 15 years. In that time, I have seen the market crash and rebound. I have seen real estate plummet and rebound. I have seen the world shut down and rebound. You see the theme ~ a crash followed by a rebound. The thing you won’t see a theme with is the reason for the crash and the rebound. From the subprime mortgage debacle to a housing bubble to Covid, the results are the same but the reasoning is far different. The only thing in common among these three events is no one saw them coming in advance. Each one of those situations planted a seed that has helped me better understand risk. It has shifted both my mindset on risk and my tactical approach to reducing it. My Approach to Risk My approach to risk is both simple and complex. My starting point is the same as it is for my clients. It is a combination of my desire for risk multiplied by my need to take risks. Here is an example: If you have $20,000,000 and are living a lifestyle that costs $300,000 to maintain, your desire to risk might be a 10 but your need to take risks might be a 1. If you have $1,000,000 and are living a lifestyle that costs $300,000 to maintain, your desire to risk might be a 1 but your need to take risks might be a 10. You see risk should look different for everyone. It is a combination of art and science. Today my need to take risk has shifted down but my desire to take risk has shifted up. This has happened for a few reasons. Today, I have a clearer vision of my future money moves. I have also become better educated in the spaces that I play thus increasing my desire to take risks. Yet the thing that has helped me the most is understanding to accept risk as part of my life. The clearest example of this has been my desire to build up a war chest. A war chest is the term I use for my safe bucket of money. This is the money that will be there no matter what comes my way. The downside (and thing that kills me internally) is that money will never earn the rates of return my other buckets will earn. Yet it is equally as important if not more important than those other buckets. In summary, my approach to risk is somewhat simple. The thing that anchors this simple philosophy is having someone to keep me accountable. For me, my brother and business partner serves as my financial advisor. He gets the great pleasure of telling me, “That aligns with your risk or that is a shiny object to avoid.” While I don't always want to hear it, that second set of eyes has been invaluable. 3 Tactical Steps to Take There is no way to remove all risks from your financial life. Stuff money under your mattress and your house could still go down in a blaze of glory. Yet there are tactical steps you can take to reduce risk and increase your odds of staying in the game. Remember, the ultimate goal of investing is not great one-year returns it is staying in the game long enough to let compounding take effect. Build Your War Chest The money you place here gives the rest of your portfolio the ability to compound. It allows you to stick with your investments through those inevitable crashes and find traction on the rebound. It gives you the peace of mind needed to sleep at night when the train is seemingly off the tracks. Diversify The only free lunch in investing is diversification. The best part of diversification is you will drastically increase your odds of staying in the game and capturing a fair rate of return. The worst part of diversification is that it will always leave you wanting more. Your portfolio will be littered with things you want more of and stuff you want less of. Know the Game The number of ways to make money and invest money is endless. While the best investors may choose a different asset class they all have one thing in common. They focus on what they know. They are not playing someone else’s game. They are playing the game that tilts the odds heaviest in their favor. For the record, for most people that is a diversified portfolio tilted towards stocks. Risk is weird. We all know it is there but we often think it won’t happen to us. That is a dangerous mindset. Building and protecting wealth is as much about protecting your downside as it is maximizing your upside. ------------------------------------------------------------------------------------------------------------------------------ Moment Private Wealth specializes in helping professional athletes and entrepreneurs build and protect wealth. Understanding risk for our clients is at the heart of what we do as financial advisors to athletes and entrepreneurs. Get in Touch With An Advisor *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.

Even the brightest stars can fall from the financial heavens when they neglect a rock-solid financial plan. Consider the cautionary tale of Mike Tyson, the legendary boxer known for his incredible prowess in the ring. With fame, fortune, and a seemingly endless stream of victories, Tyson was on top of the world. During the course of Tyson's career he netted $430,000,000 in purses and endorsements. However, today you can find stories of Tyson's declaring bankruptcy. Mike Tyson's story serves as a powerful reminder of the critical importance of comprehensive financial planning for entrepreneurs. Entrepreneurs, do you have a rock-solid financial plan in place to fuel your business journey? Financial planning is the backbone of entrepreneurial success. In this blog, we'll dive deep into each area, bringing them to life with stories to help you grasp their critical importance. The Entrepreneur's Financial Plan The financial plan is your entrepreneurial blueprint, mapping out your path to success. It comprises five critical elements: Cash Flow Tax Planning Risk Management Estate Planning Investment Management Neglecting any of these is like constructing a skyscraper without a foundation—risky and bound for trouble. 5 Components of Your Financial Plan 1) Cash Flow - Steering Your Entrepreneurial Ship Cash flow and what you do with it is equivalent to how you steer the ship through the ever-changing seas of entrepreneurship. Picture your financial journey as a voyage across uncharted waters, and your cash flow plan as the captain's wheel, guiding your ship through calm and stormy seas. Imagine yourself as the captain of a majestic sailing vessel, embarking on a grand adventure. Your ship represents your business, and the sea symbolizes the financial landscape. Just as a skilled captain charts the course, adjusts the sails, and navigates through unpredictable weather, cash flow planning involves steering your business through the financial challenges and opportunities that lie ahead. The entrepreneurial sea can be serene at times, with smooth sailing and a favorable wind at your back. However, it can also be turbulent, with rough waves and unexpected storms. Giving direction to your cash equips you with the expertise to make informed decisions, adjust your course when necessary, and ensure your entrepreneurial ship remains on a steady trajectory. Much like a captain who plans for fuel, supplies, and crew management you need to plan around your income. That involves forecasting income, managing expenses, and allocating resources strategically. It's your financial compass, guiding your ship toward financial prosperity and helping you avoid running aground. Moment Private Wealth specializes in being your financial captain, assisting you in steering your entrepreneurial ship with confidence. We understand that cash flow planning is essential for maintaining a steady course, and we're here to ensure your financial voyage leads to success. 2) Tax Planning - Navigating the Lifelong Financial Journey Tax planning isn't a one-time event; it's a lifelong strategy, much like maintaining a well-tended garden. Just as a skilled gardener tends to their plants throughout the seasons, tax planning requires continuous attention and care to ensure a bountiful harvest. Imagine your financial life as a garden that grows and evolves over the years. Tax planning is the process of nurturing and cultivating your financial landscape. Just as a gardener plans for each season and adapts to changing weather conditions, tax planning involves preparing for various financial phases and adjusting to ever-changing tax laws. In the world of taxation, it's not about winning a single game; it's about playing the long game. Much like a committed gardener who invests time and effort in planting, pruning, and harvesting, tax planning involves making strategic financial decisions throughout your lifetime. Just as a gardener learns from experience and refines their techniques, tax planning evolves as your financial situation changes. It requires ongoing attention to maximize tax efficiency, minimize liabilities, and ensure that your financial garden flourishes year after year. Moment Private Wealth specializes in being financial advisors to entrepreneurs. Ensuring your tax strategy is well thought out, proactive, and focused around your situation. We understand that tax planning is not a sprint but a marathon, and we're here to help you cultivate financial success that lasts a lifetime. 3) Risk Management - Fortifying Your Entrepreneurial Castle Consider risk management as the sturdy walls and defenses of your entrepreneurial castle. Just as a medieval fortress protected its inhabitants from external threats, risk management safeguards your wealth and business from unforeseen perils. Imagine your entrepreneurial journey as the ruler of a magnificent castle nestled atop a strategic hill. Your wealth, business, and loved ones reside within these walls, just as your assets are held within your business. To protect your kingdom, you must fortify the castle with walls, gates, and guards. In the same way, risk management involves creating a robust defense system against potential threats. The world outside your castle is filled with uncertainties – economic downturns, legal disputes, and unexpected emergencies. Just as a castle's defenses are designed to withstand assaults, risk management strategies are in place to shield your wealth and assets from these external dangers. Your entrepreneurial castle's walls symbolize insurance policies, legal safeguards, and contingency plans. These defenses protect your kingdom, ensuring that even during turbulent times, your wealth and legacy remain intact. Just as a vigilant castle guard watches over the gates, risk management professionals oversee your financial fortress, ensuring that potential threats are detected and neutralized. Moment Private Wealth specializes in being the architects of your financial fortress. We build and maintain the defenses needed to protect your entrepreneurial kingdom, ensuring that your legacy endures any storm that may come your way. 4) Estate Planning - Safeguarding Your Entrepreneurial Legacy Estate planning is the guardian of your entrepreneurial legacy, akin to a skilled conductor orchestrating a symphony. Just as a conductor meticulously directs each instrument to create a harmonious masterpiece, estate planning ensures that every element of your wealth and assets is harmoniously preserved and distributed according to your vision. Imagine your wealth as a grand musical composition, with different instruments representing various assets – your business, real estate, investments, and personal possessions. These instruments need a conductor to ensure they play in perfect harmony even when you're no longer present. Estate planning is the conductor's baton, guiding the distribution of your assets to create a lasting legacy. Like the composer who leaves detailed instructions for the conductor, your estate plan provides clear directives on how your wealth should be managed and distributed. It specifies who inherits your business, how your assets are divided, and how your philanthropic desires are carried out. Just as a conductor ensures that every note is played with precision, estate planning protects your assets from potential disputes and mismanagement. It ensures that your entrepreneurial legacy continues to resonate for generations, much like a timeless symphony that transcends time. Moment Private Wealth specializes in being the conductor of your estate plan, orchestrating the preservation and distribution of your entrepreneurial legacy with the utmost precision and care. Let us compose a legacy plan that ensures your life's work remains a symphony of success for your loved ones. 5)  Investment Management - Building Your Entrepreneurial Portfolio Investment management is all about constructing a diversified portfolio of business opportunities. Think of it as your entrepreneurial venture's architectural blueprint. Just as a skilled architect balances aesthetics, functionality, and structural integrity when designing a building, entrepreneurs must carefully weigh risk and reward in their investments. Consider your investment portfolio as a collection of buildings in a bustling city. Each building represents a different asset class, from stocks and bonds to real estate and private equity. Just as city planners allocate resources to ensure the city thrives, you must allocate your resources effectively among these asset classes to thrive financially. Now, imagine the city has both public and private real estate markets. The public market buildings are like well-established skyscrapers with steady rental income. They're less risky but offer modest returns. On the other hand, the private market buildings are like promising startups with the potential for exponential growth, but also higher risk. Optimizing your portfolio involves finding the right balance between these public and private market buildings. It's akin to being a real estate developer who strategically invests in both established properties and budding ventures. The goal is to create a resilient portfolio that can weather economic storms while capturing growth opportunities. Just as a developer carefully selects properties, you must consider asset allocation, investment costs, and tax implications. Like a developer who minimizes construction costs and navigates zoning regulations, you should minimize investment fees and optimize your tax strategy to maximize your financial gains. Moment Private Wealth specializes in helping entrepreneurs build their investment portfolios. We're the architects who design portfolios tailored to your unique needs, just as an architect customizes buildings to suit their purpose. Let us be your financial architects, crafting an investment plan that ensures your entrepreneurial vision stands tall and prosperous. ------------------------------------------------------------------------------------------------------------------------------ Entrepreneurs, your financial success is the key to unlocking your entrepreneurial dreams. Moment Private Wealth specializes in being financial advisors to entrepreneurs. Don't leave your financial future to chance. Our goal at Moment is that we are the guides on your journey to financial success. If you are an entrepreneur who is interested in a free financial blueprint, schedule a call, and talk with a Moment founder. Get in Touch With An Advisor *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.

In 2015, my Dad was running a business in my hometown of Saint Louis, Missouri. He had been running this business for over two decades. In late 2015, he received the news that he had an aggressive form of cancer and only a few short months later he had sold his business and passed away. It was an emotional time for our family navigating the new reality we were living in. One unfortunate result of my Dad his diagnosis was a forced sale with no succession plan. It caused additional stress and anxiety but also cost him being able to get fair value for two decades of work. In this blog, I am going to break down the 5 core components of a succession plan. Follow these steps to maximize your exit. What is a succession plan? Do you own a business? Then you should have a succession plan. If you aren't familiar with a succession plan, consider these questions. Can I afford to sell my business? Who do I want to sell my business to? Is this business going to be part of my legacy? Do I have the right people on my financial team? How do I want my employees to be taken care of? A succession plan is a way for you to answer all these questions on your terms. When you have a plan in place it allows you to minimize downside risk and avoid any surprises. There is no one-size-fits-all in a succession plan, but I can tell you firsthand that not having one is not good. After all, you have likely worked your entire life to grow your business. My first-hand experience is that you want to maximize it. Let's look at the components of a winning succession plan. 5 Components of Your Succession Plan 1) Who are you selling to? If you want to maximize your exit you need to understand who your buyers are. These are the most common answers. Family Employees Private Equity Strategic Buyers Each one of these buyers provides a unique value proposition. Selling to your family could maximize the legacy you leave. Your employees have provided tremendous value. How will you reward them? Private equity can maximize your financial outcome, but it may come at a cost. Strategic buyers could be a great way to get a second bite out of the apple. There is no one right buyer, but there are wrong buyers. Knowing your goals will help create a win-win for everyone involved. 2) Who is on your team? When you are looking to create a succession plan you need to know who is on your team. Your team needs to consist of experts in the space. Remember you may only get one shot at this. It is not the time to DIY. It is the time to find experts that can help you. Here are the people that need to be on your team. M&A Attorney Tax Professional Sell Side Banker Financial Planner Insurance Advisor You may have all, some, or none of these members on your team today. That is ok. The job of your team is to work together and help you find the right people for you. When you are building your deal team ensure that each member is holding each other accountable. Without teamwork, you can often find items falling through the cracks. 3) What is your ideal post-exit world? Remember that you hold all the cards. You don't have to leave or sell. This is why considering your ideal outcome in advance is key. Your ideal outcome is going to drive your decisions and your team's decisions. Clear direction will allow you to zero in on the right buyers. Are you looking to fully exit the company? Are you staying on board with the company? Are you looking to partially exit the company? Your ideal outcome can only happen if you have thought about these questions in advance. Remember time will kill your deal. If emotions are high and time is short that is not the time to make these types of decisions. Hours of your time will be saved in this process by avoiding conversations with the wrong buyers. 4) What does it cost to be you? Often overlooked by business owners is the cost of being them. After years of running their business, you will typically find many personal expenses that have become business expenses. There is nothing wrong with this if you factor it in. If you haven't you could be in a hurt of trouble. Here are the questions I would consider during succession planning. What does your lifestyle cost? Will this lifestyle change after you exit? How much of your personal life is funded by the business? Whether your succession plan is $1,000,000 or $100,000,000 you will have anxiety around your exit if you don't know the answer to these questions. Getting in front of your planning is the key to a stress-free succession plan. 5) What is your number? Every succession plan has a number. A key to making the right decision for you is knowing what that number is. Flying blind into these conversations without a number in mind will make the decision to sign on that dotted line even harder. You will almost always think the company is worth more than the number presented. Having your number will give you a clear mind. Can I continue living my lifestyle with this post-tax money? Does this amount of money allow me to meet my goals? Am I comfortable walking away for this amount? Putting together a financial plan is the ultimate tool for answering these questions. A financial plan will allow you to project what your number needs to be. When you have an answer to that question it will give you the peace of mind to know your number is the right one. At Moment, many of our clients have created succession plans. They have bridged the gap between what they have accomplished in business and what they need in their life. Knowing this answer has given them great confidence in moving forward with implementing a succession exit. If you are concerned about your succession plan, consider scheduling a call to see how we can help. ------------------------------------------------------------------------------------------------------------------------------ Our goal at Moment is that no business gets put into the situation that my Dad was in. The only out was to sell and to sell quickly. This is why we help with succession planning. It is the best tool we have to avoid a bad outcome. If you are an entrepreneur who is interested in succession planning, schedule a call, and talk with a Moment founder. Get in Touch With An Advisor *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.

The best times to pay taxes are never or later. A line told to me by my estate planning attorney and one I often repeat. The truth is taxes are an inevitable part of life. You will owe them, I will owe them. I remember sitting down in 2009 with my mom excited to show me her custom Excel document. You see she had neatly broken down my pre-tax signing bonus, spending assumptions, and tax bill. My eyes immediately jumped to the tax bill. “I am going to owe that much”. Since then, I have explored, been pitched, and researched nearly every tax strategy out there. My conclusion is this ~ many of the best tax strategies are not the complex one-offs, they are the ones you can implement. First, understand that taxes are a lifetime game. The goal is to pay the lowest amount over your lifetime not just one single year. Second, understand that taxes are unique to you. The way you earn money, the things you care about, and how you choose to invest will all affect your tax bill. Third, understand that there is a lot of misinformation out there when it comes to tax planning. My goal is to bring you only strategies I have personally done or researched deeply and implemented with clients. 5 Tax Strategies I want to break down five strategies I use to help lower my tax bill. The breakdown of each will be as follows. The Strategy How to use it How I use it Why I use it The tax benefits of using it Sound fair? Great here we go: 1) Retirement Accounts Perhaps the most straightforward strategy I use. Retirement accounts are simple in theory, the IRS provides you either a future year tax incentive (deferral/tax-free growth) and/or a current year tax incentive (deduction) to contribute. I make 401(k) contributions up to my company match which is 5%. I do not max out this account simply because I want increased flexibility with my investments. I also utilize a backdoor Roth IRA strategy each year. This allows me to contribute $7,000 in 2024. The last “retirement” strategy I use is a Health Savings Account or HSA. While this money is earmarked for future health care expenses I group it into this bucket. My contribution for 2024 is the family maximum, $8,300. I use my retirement accounts for tax benefits received. I do think they can be good to build the muscle of saving for those starting their wealth-building journey as well. Overall, these contributions won’t save me more than a few thousand dollars in any given year. Yet combined with decades to invest that money the future tax savings add up quickly. 2) Tax Efficient Investing Everyone thinks of saving on taxes as they are earning money from their career but I am fascinated by saving taxes on the money I am earning from my investments. The idea is simple, compound my investments and pay as little tax as possible along the way. The biggest way I do this is through investing in exchange-traded funds or ETFs. These are baskets of stocks similar to mutual funds with one key difference. They rarely pay capital gain distributions (like mutual funds) at the end of the year. This means that all of my gains are tax-deferred until I choose to sell the fund. The only tax owed (assuming I don’t sell) is from the dividends the funds pay. While I also incorporate more nuanced strategies specific to me, ETFs are a great starting point to understand. I use these because the large majority of my assets are in taxable accounts. Remember, I like the flexibility of investing outside of retirement accounts plus retirement accounts have strict yearly limits. My goal is to reduce the tax drag on my portfolio and increase my after-tax rate of return. Here is an example of two portfolios: The ETF portfolio has no capital gain distributions. The mutual fund portfolio has capital gain distributions. *This is hypothetical and meant to illustrate the tax drag that can occur. 3) Tax Loss Harvesting Tax loss harvesting is selling a position that has gone down in value to capture the loss. In conjunction, you immediately rebuy an equivalent position. This allows you to lock in the loss for tax purposes but stay invested in the market. I use this in my portfolio when we see pullbacks in the market. If I have a position or a fund that is at a loss, I will sell it lock in that loss, and buy an equivalent position. Doing this over time has created a tax asset, the loss I created then can be used in both current and future years. I use $3,000 of losses to offset current year income and often carry forward additional losses to future years. As I continue to grow my portfolio and my life changes there will inevitably be things I want to use my investment portfolio for. By having a tax loss in the holster, I can reduce a future tax bill by using this tax asset to offset the gains when I do sell investments. 4) Donating to Charity Donating to charity is about the heart, not the tax benefit. With that said, I have yet to meet anyone who would prefer less money to go to their favorite charity and more money to go to the IRS. That is why one of my favorite strategies is utilizing a Donor Advised Fund (DAF). A DAF is an account that allows you to supercharge your giving. Instead of giving directly to a charity you can gift cash or stock (preferred) to it. You then can invest the money inside of the DAF and grant the money to charity over your desired period. I use this to maximize my gifting in years I am in the highest tax bracket. I do this by bunching gifts together. An example is bunching five years of giving into one year to maximize the tax benefit. In addition, I am always giving away appreciated securities or stocks. This allows me to avoid capital gains on those positions while taking the full amount as a tax deduction. A more nuanced but additional reason is it allows me to itemize my deductions instead of taking the standard deduction. A DAF allows me to give more away, get a bigger tax deduction, and strategically use my appreciated investments. It is a win, win, win. If you combine my giving in the highest tax bracket plus my appreciated investments, the tax savings add up. That means that not only do I receive a roughly 37% deduction, but I also avoid a capital gains tax on my appreciated investments. Here is a visual of how it works: 5) Tax Election It is important to understand an LLC is not a tax election. An LLC is an entity and then you must decide how you want your LLC to be taxed. The four common tax elections are sole proprietorships, partnerships, S-Corps, and C-Corps. A few questions to consider when determining your tax election: Do you plan to raise capital? Do you plan to sell the business? How many employees do you or will you have? Do you want to have increased flexibility in taking money out? Will you earn more from the business than a reasonable salary for your job function? The answer to the above questions combined with your long-term plan will dictate which tax election provides the biggest benefit. When we first started Moment Private Wealth we elected to be taxed as a partnership. This provided us with increased flexibility for salaries and distributions in the early days. As we have grown and brought on additional team members, we have shifted to an S Corp election. The S Corp provides less flexibility but decreases our tax bill based on how we pull money out of the business. This is something every business owner needs to have a thesis on. Why are you structured the way you are and should it continue to be that way moving forward? Your goals, business, desired optionality and cash flow will all play a role in this decision. The right tax election can save hundreds of thousands in lifetime taxes (if not more), spend time figuring out your optimal election. ------------------------------------------------------------------------------------------------------------------------------ Good tax planning starts with good real-life planning. The above strategies are ones I focus on every year. I focus on them because they help me pay less in taxes and get closer to my financial goals. Remember the two best times to pay taxes are never or later. Yet as my mom told me, “You always want to be paying taxes, it means you are making money.” Earn income, plan around it, and understand how to lower your lifetime tax bill. If you are a pro athlete or entrepreneur who is interested in a free review of your estate plan, schedule a call and talk with a Moment founder. Get in Touch With An Advisor *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.

In 2010 George Steinbrenner, the owner of the New York Yankees, avoided paying $500,000,000 in taxes. Believe it or not, the government has a tax that families have to pay at death. Steinbrenner had accumulated over a billion dollars in net worth which meant he was going to owe a significant tax bill at death. As fortunate timing would have it, in 2010 George W. Bush passed an act that eliminated estate taxes. It was only for the year 2010. This is the year that Mr. Steinbrenner passed away. For the Steinbrenner heirs, this meant an extra $500,000,000. The Steinbrenner's spent thousands if not millions on estate planning, but their biggest win was simply due to a little luck. In this blog, I am going to break down what an estate plan is and the 5 core components. Follow these and you won't have to rely on getting lucky. What is an Estate Plan? Your estate plan is simple. It is a place where you can outline in advance your wishes. Who takes care of me? Where is your money going? What the money can be used for? Who takes care of my loved ones? Who is in charge of distributing my assets? These are only a few questions your estate plan can answer. Just like any good plan the best estate plans are done in advance. If you do not do it in advance you get the government's plan. This is what we call the probate process. This process exposes your information publicly and allows anyone to make a claim to your assets. Trust me you probably don't want the government's plan. Follow these steps to help better plan for the future. 5 Components of Your Core Estate Plan 1) Revocable Living Trust You may have heard of a trust before. I am going to help demystify it for you. A trust is simple. It is a written plan for your assets and wishes. For many adding beneficiaries to assets is step one and a trust is step two. A few reasons why I recommend a trust over just beneficiaries: If your beneficiary dies at the same time as you these assets will go into the probate process. Creditors can come after these funds once given outright to your beneficiary. You have no control over how your beneficiary uses these funds. A revocable living trust can fix many of your issues. The best part is with a revocable trust you can change it at any time. This is my number one idea for those looking to provide direction and protection to their assets. 2) Pour Over Will Now you know what happens to your property with a title let's talk about all the other stuff. These are all the items you own but don't have a title for. Wedding Ring Furniture Art The way a pour over will works is it instructs your estate to move or pour all of these assets into your trust. They will avoid probate and will be distributed based on the trust. Many people want to direct these items because of their monetary value or sentimental value. The pour over will allows you to do just that. 3) Power of Attorney Have you ever wondered what would happen if you couldn't make financial or healthcare decisions for yourself? Well, there are two options that you have. You get the government's plan. You get to decide in advance who is making these decisions. In the first scenario, a judge is going to appoint someone on your behalf to make these decisions. They can appoint who they deem fit. This could have huge implications depending on your net worth and situation. In the second scenario, you are able to outline exactly who you want to have this authority, when they get this authority, and exactly what they can and can't do. I am yet to meet someone who wants the government's plan. As we like to say at Moment, plan now or regret it later. 4) Guardianship I have three kids and I want to make sure they are protected if something happens to my wife and I. Proper planning involves guardianship planning for children. A well designed estate plan will dictate who, when, and how a guardian will be able to watch over your children. Within guardianship, there are a few components to consider. How can that guardian use your money? What schools would you like your child to attend? What area would you like your child to grow up in? It amazes me how many people care deeply for their kids, but haven't taken a few hours to get guardianship taken care of. 5) Estate Taxes Every decision you make in your financial life will have a tax consequence. Even your estate plan can have a tax consequence. The good news, if you are worth less than $13,610,000 in 2024 you are not not subject to estate taxes. If you aren't sure what your net worth will be let's look at a few components you should consider. Bank and Investment Accounts Death Benefit of Life Insurance Value of your Business Retirement Accounts Real Estate Assets If you add up all of these items and it is under $13,610,000 then you will avoid this tax. If you are over this amount you will be subject to estate taxes. These brackets get up to 40% almost immediately. Thankfully there are steps and solutions to avoid these taxes. The easiest way to increase the tax free portion of your estate is to get married. This alone can double your exemption to $27,220,000 through proper planning. At Moment, many of our clients are navigating impending estate taxes. We like to think about this planning as the second level of the house. Step one or the revocable trust is the foundation and everything we do is build on that. There is incredible nuance in planning done for families navigating estate taxes. To take your learning a step further, learn how gifting can be a powerful strategy to consider. If you are concerned about your potential estate tax bill, consider schedule a call to see how we can help. ------------------------------------------------------------------------------------------------------------------------------ We might not all own professional baseball teams and have a $500,000,000 dollar tax bill to avoid, but I can assure you that these 5 steps can help anyone in any situation. Remember, estate planning doesn't need to be scary. There are simple steps you can take today. Our job is to help guide you on your path to success. If you are a pro athlete or entrepreneur who is interested in a free review of your estate plan, schedule a call and talk with a Moment founder. Get in Touch With An Advisor *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.

In 1996, Peter Thiel started PayPal.  To date, he arguably has the most famous implementation of a Roth IRA strategy.  That same year he placed 1.7 million shares of PayPal into his Roth IRA.  At the time the valuation of these shares was $1,700 which allowed him to place all the shares into this tax-sheltered vehicle.  We all know PayPal has grown to be worth billions. What you might not know is Thiel's investment has become a tax free compounding machine. This is a fun story to share around a campfire, but what does this mean for you? In this blog, we are going to break down what is a Roth IRA and 3 ways you can use one. What is a Roth IRA? A Roth IRA is an individual retirement account. The way retirement accounts work is the government provides you with a benefit to incentivize you to save for retirement. A Roth IRA provides a future year tax benefit.  When you contribute to a Roth IRA you do not get a tax benefit today but any money in this account grows tax free and gets distributed tax free.  Retirement accounts will provide tax benefits but they also have regulations on when you can use the money. In a Roth IRA, you can pull out contributions at any time but the growth of your investments is subject to a 10% penalty should you use the funds before 59.5. 3 Ways to Use a Roth IRA 1) Making an Annual Roth IRA Contribution Before we talk complex let's keep it simple. The first way and simplest way to contribute to a Roth IRA is to do it directly. Every year you are going to have the option to contribute to a Roth IRA.  Let's break down the rules and regulations in order for you to be able to make this contribution. Earned Income – In order to contribute to a Roth IRA you have to have earned income. This is income you make from performing a job or active income. This CANNOT be portfolio income. Income Limit – You will also need to make under $230,000 as a married couple to make a full Roth IRA contribution or under $146,000 as a single tax filer. If you make more than this, we have a plan for you to contribute later in this blog. Funding Limit – Depending on your age you will be able to contribute different amounts of money. If you are under 50 you can contribute $7,000 to your Roth IRA and if you are over 50 you can contribute $8,000 annually.  These numbers are for the 2024 calendar year. If you are married and make under $230,000 as a couple this is the simplest way to start getting money into a Roth IRA and growing it tax free. 2) Backdoor Roth IRA Contribution For those of you reading this that are over the income limits listed above this section is for you.  One strategy we utilize on regularly is a backdoor Roth IRA strategy. Let's break down who is eligible and how it works. Income Limit – No income limit on making this contribution. Pro Rata Rule – This is only available to those who DO NOT have any assets in an IRA. If you have assets in an IRA you will be subject to the pro rata rule. This rule will stop you from being able to do a backdoor Roth IRA contribution.  The two ways to get around this are to convert your IRA to a Roth IRA or roll your IRA assets into your 401(K).  This is a decision you should make in conjunction with your tax professional and financial advisor. Funding Limit – This funding limit is the same on a backdoor Roth IRA. $7,000 annual contribution if you are under 50 and $8,000 annual contribution if you are over 50. The Mechanics – To implement this strategy you will need to follow these steps. 1.      Put $7,000 into your IRA. 2.     Transfer the $7,000 from your IRA to your Roth IRA. 3.      Invest your Roth IRA and grow your assets tax free. This is the most popular strategy we see utilized for families that are making significant income.  Over a decade, a couple could get six figures into these tax free vehicles. With steady growth, this could turn into millions of dollars in tax free money. 3) The Peter Thiel Method This is the most complex way to potentially maximize your Roth IRA.  Before you tell me this is what you want to do, know that the conditions have to be right. When you are looking at copying what Thiel did you need to be able to say yes to one of these statements below. You have stock in a company that is worth less than the annual contribution limit ($7,000) for a Roth IRA. Remember Thiel’s PayPal stock was only worth $1,700 at the time he contributed it to his Roth IRA. This is unique and typically only applies in venture capital scenarios. You have money in a Roth IRA that I want to invest in high growth private companies. If you didn’t start the company but want to invest tax free you will need funds in a Roth IRA. If you aren’t sure how to do this revert back to reading steps 1 and 2 above. If you can answer yes to one or both of these scenarios you could potentially execute the holy grail of Roth IRAs. To implement these, we will need to get specialized legal, tax, and custodians in place. All things Moment Private Wealth can help you with. The reality is most of us will never use a Roth IRA in the way Thiel used it, but that doesn’t mean that the Roth IRA still can’t be a powerful tool. The reality is that steps 1 and 2 could still help you save millions in tax free money. If you are a pro athlete or entrepreneur who is interested in learning more about how a Roth IRA might fit into your financial plan, schedule a call and talk with a Moment founder. Get in Touch With An Advisor *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.

As an athlete, one of the hardest things to do is to make money playing sports. Less than .05% of high school athletes will ever become professional athletes. Choosing a financial advisor for athletes should be easy but unfortunately, it is not. In this article, we will discuss how to choose a financial advisor for athletes. The things to consider, evaluate, and all-out avoid. The first step in evaluating a financial advisor is to understand what questions to ask. While a nice office, big boardrooms, and Fuji water are nice it does not move the needle for you in your career. What does move the needle is finding an advisor that has the necessary combination of competence, experience, and expertise. After all, you are in a situation that less than .05% of the population is in. What to consider, evaluate, and all-out avoid. 1. Who do you work with? Ask most financial advisors who they work with, and you will probably get a response like this: “We work with clients with over $1,000,000 in assets.” The problem with this is it only considers a small part of a client’s financial life. The amount of money someone has does not reflect the challenges that they face in their life. For athletes, managing money at a young age brings about hyper-specific challenges. It is one that few financial advisors have ever seen or dealt with. You want to ensure that your financial advisor works specifically with people like you. A more appropriate response to this question would be: “We serve as financial advisors for athletes, that is our specialty and what we do best.” Consider for a second if you were going in for an off-season procedure on an injury. Would you want a general doctor to be doing the surgery or would you want a specialist who only works on that particular injury? Choosing a financial advisor for an athlete should be viewed through the same lens. 2. What expertise should an athlete financial advisor have? As an athlete, you have a condensed earning window heightened by higher-than-normal earning power. This can be a great combination when executed properly. This formula executed incorrectly has led to the financial downfall of many athletes. The truth is the term “financial advisor” is one of the broadest in professional services. It takes very few qualifications to simply call yourself a financial advisor. This leads to many salesmen parading around as qualified experts. So how do you distinguish between an amateur and a professional? What qualifications does your team have that make you an expert? Real-World Experience: A financial advisor for athletes should be a combination of higher education and personal experiences. Remember, as a professional athlete you are in the less than .5% of the population that will make money playing your sport. For most financial advisors, it is a struggle to comprehend the rollercoaster that is professional sports. This includes the tactical strategies to benefit you as well as financial education. Advanced designations: The highest of these is the CFP, which stands for Certified Financial Planner. This is a combination of education, experience, and ethics. Every athlete should ensure their financial team incorporates a member with a CFP designation. 3. How will you help me build my team? Just like every athlete is a member of the team, your financial life should work the same way. A financial advisor for athletes should have the resources and network to help build the team of professionals. This team should be athlete-specific and world-class. The goal of having this team is to protect you from the unknown (insurance), reduce your lifetime tax bill (taxes), and help you plan for leaving a legacy (estate planning). Your team should consist of: Financial Advisor: Your point person for your family’s financial life. Accountant: The team member that will help you execute tax strategies specific to you that will lower your lifetime tax bill. Insurance Agent: As an athlete, you are an easy target. The goal is to protect what you have worked so hard to earn. Estate Planning Attorney: Athletes have an opportunity to create generational wealth for their families. The key is to build a plan to make that happen. This is the core four of your financial team. As an athlete, there are a lot of moving parts in your financial life, and it takes everyone on your team working together. 4. What areas do you cover? The days of a financial advisor simply helping you pick an investment portfolio is over (at least they should be). As an athlete, your advisor should be serving as the point person for your entire financial life. So, what does that entail? Cash Flow: As an athlete, you have direction around your routine, workouts, and preparation. Your finances need to have that same direction. As money is coming in you want to have a plan for spending, saving, and investing each dollar. Tax Planning: Taxes will be your single biggest expense as a professional athlete. Your financial advisor should be forward-looking to determine what tax strategies you can use to lower your lifetime tax liability. (There are a lot that are specific to professional athletes) Risk Management: Simply, how do you protect what you have worked so hard to earn? The most common forms of protection include proper home, auto, renters, and umbrella insurance policies. Estate Planning: Your financial advisor should coordinate and have core estate planning documents drawn up by an attorney. This provides direction for your assets and allows you to start building a legacy. Investments: As a professional athlete, you have the blessing of having a long runway to invest money. You want to ensure that your investments are diversified, tax efficient, and built to support your lifestyle. 5. Things to Avoid Conflicts of Interest – A financial advisor should be serving in a fiduciary copacity 100% of the time. Insurance First Firms – Many firms market as financial advisors but focus mainly on insurance products. Insurance has its place but it is insurance, not an investment. Shiny Object Syndrome – Your finances are personal; they should stay that way. Be aware of advisors parading around their client list. Soon they will be telling everyone they work with you. Layered Fee Structures – Financial advisor fees should be transparent. If you can’t understand how they are getting paid ask. Many financial firms have layered fees on top of what they market, meaning more fees for the end client. Choosing the right financial advisor for you is a combination between fit, feel, and firepower. A financial advisor for athletes needs to have competence, experience, and expertise in understanding your unique situation as an athlete. Remember, you are in the .05%, is your financial advisor? Get in Touch With An Advisor *The tax and estate planning information offered by Moment Private Wealth is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

A Donor Advised Fund (DAF) is a great tool to consider for those with extraordinary income. Today we will break down what a Donor Advised Fund is, who should consider a Donor Advised Fund, and what tax benefits you will receive. What is a Donor Advised Fund? You may have heard this term before, but wondered what it is. It is an investment account used for giving. When funding this type of investment account, you get special tax treatment on your assets today and in the future. You can fund a Donor Advised Fund with cash or investments. You will be able to shift assets from your personal name into your charitable bucket when funding a Donor Advised Fund. When you move your assets into a Donor Advised Fund, the IRS treats these assets as if you have given them away in that calendar year. Donor Advised Fund assets must be given to a qualified 501C(3). A 501C(3) is a code the IRS uses to designate an organization as a charity. You cannot pull these assets back and use them for your benefit. The benefit is that the IRS allows you to get special tax treatment on the assets you donate, the growth of your assets in the Donor Advised Fund, and a tax deduction today. Example: Bill decides to move $1,000,000 into his DAF from his brokerage account. Bill does this because he wants to get multiple tax benefits in the calendar year that he is funding his DAF. Once Bill moves his assets to the DAF, the assets no longer belong to him personally but to his DAF. Bill can give these assets to any qualified 501C(3). Bill is utilizing this because of the special tax treatment this account allows and to have control over his giving in case he wants to adjust the charities he supports in the future. Recap – What is a DAF fund? An investment account that you can utilize for giving. A way to get special tax treatment on your assets today. A way to get special tax treatment on your assets in the future. Who should consider using a Donor Advised Fund? The two common characteristics of people utilizing a DAF are those experiencing extraordinary income or looking to diversify out of a concentrated holding.. The key to determining the use of a DAF is timing. Example 1: Bill has Apple stock that he bought back on December 1st, 1991, for .60 cents per share. Bill has held his Apple stock until today when the stock is worth 151.60 cents. One of the primary reasons that Bill doesn’t want to sell his Apple stock is because he will incur capital gains taxes on his sale. These taxes are calculated by looking at the difference between what Bill paid for the stock and what it is worth today. In this example, he will pay 151 dollars in capital gains taxes per share. Bill has decided that he no longer wants to hold his Apple stock and is trying to figure out how to minimize his capital gains taxes. If Bill moves his Apple stock from his brokerage account into a DAF, he will pay zero dollars in taxes on his Apple stock. Yes, you heard that right, no tax liability. Example 2: Bob is a professional athlete and has one year remaining on his contract. He recognizes that this might be his last contract and may retire after this year. He wants to know if there is a way to reduce his tax liability in the last year of his contract. By donating cash or appreciated securities to a DAF, Bob can get a dollar-for-dollar deduction on his tax return. Doing this in the last year of Bob’s career may make sense because he will be in the 37% tax bracket. If he retires, his tax rate may be reduced significantly. Let’s assume his tax bracket post-playing career is the 12% tax bracket. In this example, the benefit of using a DAF today versus after his playing career is a 308% increase in value. When you are in the highest tax bracket you get the most bang for your buck. Recap – Who should consider a Donor Advised Fund? If you are trying to diversify assets on your balance sheet and get special tax treatment. If you are experiencing a year or period of extraordinary income and are looking to reduce taxes. What are the Tax Benefits of a Donor Advised Fund? When considering a donor-advised fund there are 3 primary tax benefits. The first benefit is that you get an immediate tax deduction on your taxes. The IRS will treat any contribution as a charitable contribution for tax purposes. The second benefit is that you can mitigate capital gains taxes on assets you contribute to a DAF to zero. In the example outlined, you can see that any appreciated asset you contribute will avoid capital gains tax. The last benefit is that the assets in your DAF can be invested and grow tax-free. Example: Joe is in the process of selling his company while mitigating his taxes and preserving his legacy. Joe is going to sell his company for $20,000,000 this year with the deal projected to close in August. This strategy will need to be implemented in the calendar year that the transaction happens. In a review of Joe’s balance sheet, he has several positions in his investment portfolio that have appreciated. Joe has the opportunity to gift shares of these appreciated securities to a DAF. When Joe does this, he will eliminate the capital gains taxes on these positions at the time of the gift. When the assets hit his DAF, he will receive a tax deduction of that amount. Remember, Joe now controls these funds and can give them away to any qualified 501c(3) over any period. Lastly, he may now invest these funds and they will grow tax-free. This is appealing to Joe, as he wants to create a legacy of giving over the course of his life. Tax Benefits Recap: You can receive an immediate tax deduction on your tax return. You can mitigate capital gains taxes to zero. The assets in your Donor Advised Fund will grow tax-free If you are a pro athlete or entrepreneur who is interested in learning more about how a Donor Advised Fund might fit into your financial plan, schedule a call and talk with a Moment founder. Get in Touch With An Advisor *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.