Traditional year-end tax planning is essential to minimize tax liabilities and maximize savings. 

Over the last several years OZ FundHub and partners have become aware of techniques and strategies to mitigate taxes from all forms of Income as well all types of Capital Gains. 

Whenever larger taxable events occur, normal year-end tax planning strategies may not be able to adequately mitigate taxes thus leaving the taxpayer with larger, yet avoidable, tax bills. Examples: one time income events, passive income, passive gains, Restricted Stock Units, stock sales - including crypto, business sales, real estate sales, IRA to ROTH Conversions, Etc. 

Following are key goals, objectives, and strategies to consider for traditional year end tax planning:

Goals and Objectives:

1. Minimize Tax Liability - Aim to legally reduce the amount of tax owed by utilizing deductions, credits, and other tax advantages.
2. Maximize Tax-Advantaged Accounts - Increase contributions to retirement accounts or health savings accounts to reduce taxable income.
3. Timing Deductions and Income - Strategically plan to defer income to the next year or accelerate deductions into the current year based on your tax situation.
4. Utilize Tax Credits - Explore available tax credits that can directly reduce taxes owed.
5. Evaluate Investment Strategies - Review and manage investments to optimize capital gains and losses.

Strategies:

1. Maximize Retirement Contributions - Contribute the maximum allowable amount to your 401(k), IRA, or other retirement plans. Consider making a catch-up contribution if you're eligible. 
   • Take your retirement strategy to the next level by converting your pre-tax retirement contribution to a ROTH IRA by using a tax efficient strategy, CLICK HERE .
2. Charitable Contributions - Donate cash or assets to qualified charities to earn deductions. Consider bunching donations to exceed the standard deduction threshold.
   • Taxpayers with significant income may be able to reduce their taxes by using charitable land donations. 
3. Defer Income - If you anticipate being in a lower tax bracket next year, consider pushing income, such as bonuses or capital gains, to the following tax year.
   • Taxpayers with significant one time income events may be able to reduce their taxes by using Intangible Drilling costs, CLICK HERE.
   • Taxpayers with significant Passive Income may be able to reduce their taxes with Solar Funds CLICK HERE or Bonus Depreciation / Motor Fuels, CLICK HERE.
4. Accelerate Deductions - Pay any outstanding medical expenses, property taxes, or mortgage interest before year-end to deduct them in the current tax year.
5. Tax Loss Harvesting - Sell underperforming investments to realize losses that can offset gains. Be mindful of tax rules regarding wash sales.
6. Review Medical Expenses - If you itemize deductions, ensure you track all qualifying medical expenses and reimbursements.
7. Flexible Spending Accounts (FSAs) - Utilize funds in your FSA before the year-end deadline as unused funds may be forfeited.
8. Timing of Business Expenses - For business owners, consider if it makes sense to make large purchases or pay expenses before year-end for a deduction.
9. Educate Yourself on Tax Law Changes - Stay informed about any changes in tax laws that could affect your liability, including potential legislation passed at the end of the year.
10. Asset Sales - Advance tax planning should be implemented when asset sales are contemplated. Unfortunately, that doesn’t always happen.
    • Tax mitigation strategies are available for all types of capital gains. This includes: Stock Sales (including Crypto), business sales, or real estate sales.
    • There are specific timelines that are required to implement relevant strategies, most of which end December 31 of the year in which the gain was realized. Some strategies have shorter timelines. 
    • If this is you contact us immediately.
11. Consult a Tax Professional - For personalized advice, consider working with a tax advisor to tailor strategies to your situation.

By implementing these strategies and keeping your goals in mind, you can make informed decisions to effectively manage your tax liabilities before the year ends. 

Tax Advantaged Investment Solutions for High Income / High Net Worth Accredited Taxpayers 

IRA to ROTH IRA Conversion

Individual Retirement Arrangements (IRA) were introduced in 1974. They allowed pre-tax dollars to be contributed into the IRA account. When withdrawn, they were taxed at ordinary income tax levels. Initially this wasn’t seen to be a problem based on the idea that retirement income would be lower than pre-retirement income. What I’ve found out is that this is often not the case. I find that investors that have diligently invested over their career may find their after-retirement income may be in the same range or higher than their pre-retirement income. What we now recommend is what I call an agricultural taxation model (i.e., where would you like taxation to occur, at the “seed" or at the “crop?”). If you subscribe to this model, open or invest in an IRA and then shortly after funding the IRA roll the investment into a ROTH IRA. This requires a longer term investment view because the pretax deduction is lost on conversion.

The question is can this roll-over strategy be more tax efficient? What we’ve found is that investments that have an active component, such as: development, often have changes in investment value, both positive and negative, over the holding period. Evidence supports that taking advantage of predictable changes in valuation will provide more tax efficient results when converting an IRA into a ROTH IRA. 

For example we often see the following:

• Real estate development - 40% value reduction in a 4 - 5 year investment. The investment is often underwritten at an 18%+ IRR and a MOIC of +/-2.2X MOIC = Multiple on Invested Capital.
• Drilling Program - 50% value reduction in a 10 year investment that is underwritten at an MOIC of +/-1.7X-1.9X.

In the complete IRA to ROTH IRA conversion process this is the first step of two steps. It is achieved by purchasing an investment in the types of assets that exhibit a predictable value reduction in your IRA. After the asset has been revalued at a lower value and reported to your custodian, the asset is moved to your ROTH IRA from your IRA. At this point, taxes from reduced taxable liability are due. Generally, the investment is revalued once the value of the investment has been impaired. For example, with the drilling program the IRA investment is made in the current year. By June of the following year the revaluation is completed and the asset is transferred to your ROTH IRA at the reduced value. 

Step two. There is one further tax reduction opportunity that is often utilized as part of this process. This occurs at the time the tax liability is created. The Drilling Program has a General Partnership (GP) portion that features a 90% tax write-off due to Intangible Drilling Costs. Intangible drilling costs (IDC) are expenses related to developing an oil or gas well that are not a part of the final operating well. They may be written off in the year the well is drilled and put into service. An investment using non-qualified funds of slightly more than the ROTH IRA taxable liability can completely eliminate tax liability for  the entire IRA to ROTH IRA conversion.

As always, it is advisable to consult with a tax professional or financial advisor to ensure alignment with individual investment goals and strategies.

Is a IRA to ROTH IRA Conversion right for you?

Consult a qualified professional - It's always recommended to seek advice from a tax advisor and/or financial expert to understand how this investment could impact your individual situation.

Carefully consider the information set forth in the confidential private placement memorandum provided by your Financial Advisor. This document outlines important details about the fund, including the Risk Factors section, which you should review thoroughly.

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Passive Income - Tax Mitigation:  Solar Funds

Solar Funds (The Fund) may offer accredited investors the opportunity to potentially reduce or eliminate taxes on passive income in year one, receive ongoing cash flow, and earn tax-free returns. The fund invests in solar projects and allows investors to benefit from returns and tax credits. 

Tired of High Passive Income Taxes? The Solar Fund Could Be Your Solution

High earners often face a significant tax burden on their passive income. This means a chunk of your hard-earned money goes to the IRS, leaving less for you to enjoy. But what if there was a way to “reduce or even eliminate” those taxes while also generating “tax-free returns” and “ongoing cash flow”? 

That's where The Solar Fund comes in. This innovative investment fund offers a unique opportunity for high-income earners to diversify their portfolios and potentially minimize their tax liability. 

Here's how it works:

Invest in Solar Projects - The Solar Fund invests in solar energy projects, allowing you to benefit from the returns and solar tax credits.

Reduce Your Tax Burden - The fund is structured to potentially offset a substantial portion of your passive income tax liability in year one. 

Enjoy Tax-Free Returns - You could earn tax-free returns on your investment, further boosting your financial well-being.

Generate Ongoing Cash Flow - The fund provides ongoing cash flow, giving you a regular stream of income.

Is a Solar Fund Investment right for you?

Consult a qualified professional - It's always recommended to seek advice from a tax advisor and/or financial expert to understand how this investment could impact your individual situation.

Carefully consider the information set forth in the confidential private placement memorandum provided by your Financial Advisor. This document outlines important details about the fund, including the Risk Factors section, which you should review thoroughly.

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Passive Income or Passive Gains investment: Bonus Depreciation in Motor Fuels

Overview

Investing in the motor fuels sector can provide significant tax benefits, particularly through bonus depreciation. This enables investors to maximize deductions in the early years of ownership, making it an attractive option for those looking to enhance cash flow and reduce tax liabilities.

What is Bonus Depreciation?

Bonus depreciation allows investors to deduct a substantial portion of the cost of qualified property in the year it’s purchased, rather than spreading it over several years. Under the Tax Cuts and Jobs Act (TCJA), significant changes were made to how depreciation can be utilized, especially for properties linked to motor fuels. In tax year 2024 Bonus depreciation is 60% of the improvement value portion of the property

Eligible Properties

Investments that qualify for bonus depreciation in the motor fuels space include:

• Gas stations
• Convenience stores (c-stores) with fuel sales
• Quick-service restaurants (QSRs) connected to fuel sales
• Truck stops

To benefit from faster depreciation schedules, 15 years vs. 39 years, properties generally need to earn over 50% of their revenue from fuel sales.

Example Investment Strategy

1. Acquisition of Eligible Properties - Investors or Motor Fuel Companies (MFCs) purchase properties that meet the criteria for bonus depreciation.
2. Long-term Fuel Supply Contracts - Properties are encumbered with long-term fuel supply agreements, securing consistent revenue.
3. Sale-Leaseback Transactions - MFCs sell these properties to investment sponsors, utilizing a sale-leaseback structure. The leases typically last 20 years, with provisions for rental escalations.
4. Debt Service Coverage (DSC) Loans - The sponsor finances the property acquisition through DSC loans to ensure steady cash flow.

Example of Financial Outcomes

• Assume a property valued at $1,000,000 where 95% is attributed to improvement value:
• 65% leverage on the property
• 60% bonus depreciation and a 15-year depreciation schedule

With an investment of approximately $587,906, an investor can effectively offset a $1,000,000 gain, retaining around $412,094 in non-taxed cash for other opportunities.

Conclusion

Investing in the motor fuels industry with a focus on bonus depreciation provides unique tax advantages and investment opportunities for investors with passive income or passive gains. By strategically acquiring eligible properties and leveraging long-term contracts, investors can maximize their returns while benefiting from favorable tax regulations. 

As always, it’s advisable to consult with a tax professional or financial advisor to accurately assess risks and benefits associated with specific investment opportunities.

Is a Bonus Depreciation in Motor Fuels Investment right for you?

Consult a qualified professional - It's always recommended to seek advice from a tax advisor and/or financial expert to understand how this investment could impact your individual situation.

Carefully consider the information set forth in the confidential private placement memorandum provided by your Financial Advisor. This document outlines important details about the fund, including the Risk Factors section, which you should review thoroughly.

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Overview of Qualified Opportunity Zone Funds (QOZFs)

Definition 

Qualified Opportunity Zone Funds (QOZFs) are investment vehicles that allow investors to put their capital gains from any source into projects within designated Opportunity Zones—economically distressed areas identified to stimulate economic development. Established by the Tax Cuts and Jobs Act of 2017, they offer tax incentives to promote long-term investments in these areas.

How QOZFs Mitigate Taxes

1. Deferral of Capital Gains Tax - Investors can defer taxes on any capital gain by investing those gains into a QOZF within 180 days of realizing the gain. This includes: stock sales, crypto sales, business sales, and real estate sales.

• • The deferred tax obligation lasts until the earlier of the sale or exchange of the investment or December 31, 2026.

2.   Tax Exemption on New Gains - If the investor holds the QOZF investment for 10 years or longer, they can completely eliminate capital gains taxes on any new gains accrued from the opportunity zone investment.

• • This is a significant benefit, as it allows investors to reinvest their returns without incurring additional tax liabilities.

3.   Tax Consultation - Engage with a tax professional to understand how QOZF investments fit within your overall tax strategy and to ensure compliance with all regulations.
4. Long-Term Commitment - Emphasize the benefit of long-term investment by considering holding periods that exceed 10 years to capitalize on the complete tax exemption for new gains.
5. Fund Selection - Conduct due diligence in selecting a reputable QOZF that aligns with your investment strategy. Assess the fund’s management, investment focus, and historical performance.

Conclusion

Qualified Opportunity Zone Funds provide a valuable opportunity for investors looking to mitigate tax liabilities while contributing to the economic revitalization of underserved areas. Investors can take advantage of significant tax deferrals and exclusions, making this a strategic element of their financial planning.

Is a Qualified Opportunity Zone Fund Investment right for you?

Consult a qualified professional - It's always recommended to seek advice from a tax advisor and/or financial expert to understand how this investment could impact your individual situation.

Carefully consider the information set forth in the confidential private placement memorandum provided by your Financial Advisor. This document outlines important details about the fund, including the Risk Factors section, which you should review thoroughly.

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Overview of 1031 Exchanges

Definition  

A 1031 exchange, named after Internal Revenue Code Section 1031, allows an investor to sell a property and reinvest the proceeds into a new property while deferring capital gains taxes on the sale. This tax-deferral strategy is commonly used in real estate transactions, enabling investors to reposition their investments without immediate tax implications.

How 1031 Exchanges Mitigate Taxes

1. Capital Gains Tax Deferral - By reinvesting the proceeds from the sale of a property into a “like-kind” property, investors can defer paying capital gains taxes. This allows the full proceeds to be utilized for the new investment instead of being applied towards taxes.
2. Like-Kind Property - The properties involved in the exchange must be of like-kind. This generally means that both the relinquished property and the replacement property must be real estate in the United States. However, the properties can differ in terms of type, location, or other characteristics.
3. Time Constraints - Investors must adhere to strict timelines:

•     Identification Period - The investor has 45 calendar days from the sale of the relinquished property to identify potential replacement properties.
•     Exchange Period - The replacement property must be acquired within 180 calendar days of the sale of the relinquished property.

4. No Limit on Exchanges - There is no limit on the number of 1031 exchanges an investor can do, creating opportunities for ongoing tax deferral as long as the proceeds are continuously reinvested.
5. Potential for Portfolio Growth - By deferring taxes, investors can leverage all available capital for their new purchase, potentially allowing for a more substantial property acquisition and greater portfolio growth over time.

Is a 1031 Exchange Investment right for you?

Consult a qualified professional - It's always recommended to seek advice from a tax advisor and/or financial expert to understand how this investment could impact your individual situation.

Carefully consider the information set forth in the confidential private placement memorandum provided by your Financial Advisor. This document outlines important details about the fund, including the Risk Factors section, which you should review thoroughly.

DISCLOSURES

Nothing in this communication should be construed as a solicitation to buy or sell any investment. Investments in Non-Traded Alternative products such as: DSTs, QOFs and other Tax Mitigation Strategies, can only be made through a PPM and are for accredited investors only. Some of these strategies are only suitable for investors in the highest tax brackets.

IREXA Financial Services / Wealth Strategies collaborates with CPAs, attorneys, and other tax planning professionals to assist clients with tax mitigation strategies. Neither IREXA, nor Great Point Capital LLC, are tax professionals or attorneys. IREXA only provides client tax mitigation strategies through, and with the approval of the client’s professional counsel.

Securities offered through Great Point Capital LLC, Member FINRA/SIPC. Great Point Capital LLC, 200 W Jackson #1000, Chicago IL 60606, telephone 312.356.4400. 

An accredited investor is defined as an investor that has a net worth over $1 million, excluding primary residence (individually or with spouse or partner), or Income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year.