Series: Take Charge: Your Money. Your Life.

Transcription

1 Series: Take Charge: Your Money. Your Life. How to use investment portfolios in tax planning Presented by: Matthew H. Rosenberg, CPA/PFS, CFA Ethan H. Corman, CFA, CAIA

2 Today s speakers Matthew H. Rosenberg, CPA/PFS, CFA Founder / CEO Mr. Rosenberg founded RoseCap in 2011, with the goal of providing high quality investment management services while putting the best interest of the client first. Prior to founding RoseCap, Mr. Rosenberg was Managing Director with Jackson Oats Shaw Corporate Real Estate, a private equity real estate investment firm in Atlanta, GA, where he lead acquisitions, dispositions, and asset management. Mr. Rosenberg also previously served as Vice President with General Electric's Commercial Finance division. He started his career in investment banking, underwriting and syndicating leveraged loans and high yield bonds for Wachovia Securities in Charlotte, NC. Mr. Rosenberg received his Masters degree in Accounting and Bachelor of Business Administration from The University of Texas, ataustin, where he was also a member of the 2002 National Championship baseball team. A native to Grand Junction, CO, Mr. Rosenberg currently serves on the board of directors for the GJ Chamber of Commerce, the STRiVE Foundation, Back the Badge Foundation, Industrial Development Inc., and the GJ Community Hospital Foundation. In his free time, he enjoys reading, competing in numerous sports, and spending time with his family. Ethan H. Corman, CFA, CAIA CIO / Portfolio Manager Mr. Corman started with RoseCap in 2013 as Portfolio Manager. He is a graduate of Colorado Mesa University, receiving a degree in business administration with a finance concentration. He is a holder of the Chartered Financial Analyst (CFA) designation, and current member of the CFA Institute s Education Advisory Committee Working Body. Additionally, he is a Holder of the Chartered Alternative Investment Analyst designation, a recognition of the advanced studies within the alternative investment industry (Hedge Funds, Private Equity, Real Assets, Commodities and Structured Products). Prior to joining RoseCap Mr. Corman served eleven years in the U.S. Airforce and Airforce Reserve, earning the Global War on Terrorism Expeditionary Medal for supporting Operation Enduring Freedom and the Air Reserve Forces Meritorious Service Medal. Today, Mr. Corman lives and works in Grand Junction, CO with his wife and two children. 2

3 Quick Message The general information contained in this web seminar is provided by the American Institute of Certified Public Accountants as a service to the public and our members. It is not intended to serve as tax, legal or any other professional advice applicable to any particular person or matter. 3

4 The Financial Planning Process Establish Relationship & Gather Client Data Update & Monitor Assess Current Financial Situation & Set Goals Implement Financial Planning Recommendations Develop Financial Planning Recommendations 4

5 Why is this important? 1. Investment goals are met with after tax returns. 2. Markets are uncertain, but taxes are not. 5

6 Taxes Associated with Portfolios

7 Taxes on Investment Accounts 1) Ordinary Income 7

8 Taxes on Investment Accounts 2) Capital Gains (ST & LT) 3) Qualified Dividends 4) Net Investment Income Tax (3.8%) 8

9 Taxes on Investment Accounts 5) Special Tax Rates a) Foreign Investment b) Partnerships Income c) Collectibles d) Futures 9

10 Taxes on Types of Investments Security Type Bonds (Fixed Income) Stocks (Equities) Funds (Mutual Funds & ETFs) Options Futures Collectibles (i.e. gold) International Equities REITs MLPs Applicable Taxes Ordinary Income, Capital Gains Ordinary Income, Qualified Dividends, Capital Gains Ordinary Income, Qualified Dividends, Capital Gains, Capital Gain Distributions Ordinary Income 60% LT / 40% ST 28% Flat Tax Varies Typically Unqualified Dividends Taxed as Partnership - Watch out for UBIT 10

11 Tax Efficient Portfolio Strategies

12 Tax Efficient Portfolio Strategies 1) Securities with Tax-Free Interest 2) Capital Gain Management 3) Capital Gain Distribution Avoidance 4) Tax Loss Harvesting 5) Asset Location 6) Portfolio Tilts 12

13 Strategy #1: Use securities with tax-free income Rule: - Interest income paid on municipal bonds is exempt from federal tax. - Municipal bonds issued within your state can be free from state, and often local tax. See IRS Publication 550 Investment Income & Expenses 13

14 Strategy #1: Use securities with tax-free income Taxable Account $1,000,000 60% 40% $400,000 Taxable Bonds Tax-Free Bonds Interest received = $20,000 (5%) Taxes on interest = $7,000 (35%) After Tax return = $13,000 (3.25%) Interest received = $16,000 (4%) Taxes on interest = $0 (35%) After Tax return = $16,000 (4.00%) 14

15 Strategy #1: Use securities with tax-free income 1) Don t put in IRAs or Roth IRAs 2) De Minimis Tax 3) Alternative Minimum Taxes 4) Increase in taxation of Social Security benefits 5) Increase in Medicare premiums 6) Capital gains taxes 7) Taxable municipal bonds 8) State income taxes 9) Is tax free a higher return (after-tax)? 15

16 Strategy #1: Use securities with tax-free income When to Use Muni s from Outside Your Home State 1) You live in state with low (or 0%) income tax. 2) Economic conditions in your home state are deteriorating. 3) You can earn a higher yield even without state tax breaks. 4) You live in a state with few choices (need more diversification). 16

17 Strategy #1: Use securities with tax-free income Taxable Equivalent Yield = Tax Free Municipal Bond Yield 1 Tax Rate Example: Tax exempt municipal bond yield = 2.0% Investor marginal tax rate = 22.0% Taxable Equivalent Yield = 2.56% 17

18 Strategy #1: Use securities with tax-free income Use data to back into tax rate: 1-3 year Municipal AA = 3.016% Corporate AA = 3.317% Implied Tax Rate = 10.0% 7-10 year Municipal BBB = 4.241% Corporate BBB = 7.552% Implied Tax Rate = 78.1% *Data as of 11/19/

19 Strategy #2: Capital Gain Management Strategy: 1) If realized losses, sell securities in a portfolio that have embedded gain (repurchase to step up basis). 2) If distribution, sell securities with highest basis first (specific identification). 3) Bracket-fill 19

20 Strategy #2: Capital Gain Management Example (down year or outside losses): - High income earner with bad year LTCG rate falls to 15% - $1M portfolio with $200,000 unrealized LT Capital Gains - Will need distributions from portfolio in next 2 years. Calculate how much gain can be realized before 20% and take it. 20

21 Strategy #2: Capital Gain Management Example (down year or outside losses): - High income earner sold investment property for $200,000 LT Capital Loss. - $1M portfolio with $200,000 unrealized LT Capital Gain. - Needs distribution from portfolio next year. Realize capital gains in portfolio to step up basis. 21

22 Strategy #2: Capital Gain Management Example (cash raise for distribution): Sell specific lots: - $1mm portfolio, $875k basis - Need to liquidate $500k to buy a house prior to retirement Basis in securities sold = $562k, Realized loss of $62k (carried forward) FIFO method of selling - $1mm portfolio, $875k basis - Need to liquidate $500k to buy a house prior to retirement Basis in securities sold = $312,500, Realized gain of $187,500 (ouch!) 22

23 Strategy #3: Capital Gain Avoidance 1) Don t over-trade 2) Pay attention to security type Mutual Funds stock 23

24 Strategy #3: Capital Gain Avoidance 24

25 Strategy #3: Capital Gain Avoidance 1) Security Price Fell -34.3% over 1 year. 2) Capital gains distribution +4.9% 25

26 Strategy #3: Capital Gain Avoidance 1) Don t over-trade 2) Pay attention to security type Mutual Funds ETFs stock stock ETF Share 26

27 Strategy #3: Capital Gain Avoidance Factors that influence capital gain distribution rates: 1) Security type & asset class. 2) Market performance. 3) Active management of the fund. 4) Mutual fund redemptions. 27

28 Strategy #4: Tax Loss Harvesting 1) Selling securities in a portfolio that have experienced a loss. 2) Replace sold security with a similar one to maintain target asset allocation (risk & expected return. 28

29 Strategy #4: Tax Loss Harvesting Benefits: 1) Reduce taxable income by up to $3,000 per year (unlimited carryforward of unused losses for future years). 2) Offset gains already realized. 3) Use to increase basis on securities with embedded gains. 29

30 Strategy #4: Tax Loss Harvesting Factors that Influence: 1) Diversification of portfolio 2) Portfolio costing method (LIFO, FIFO, weighted avg., specific identification) 3) Age of portfolio (benefit tends to diminish over time). 4) Portfolio composition 30

31 Strategy #4: Tax Loss Harvesting Example: Unrealized Asset Class Amount ($) % ST Gain/Loss Cash & Equivalents $1, % $15 U.S. Stock 50, % 3,000 International Stock 20, % (2,000) U.S. Bond 20, % 500 International Bond 5, % (500) Commodities 4, % 750 TOTAL $100, % $1,765 31

32 Strategy #4: Tax Loss Harvesting 1) Security Price Fell -10% from high. 2) Sell and replace with similar security. $600,000 3) Sell and replace with original security at lower basis. 32

33 Strategy #4: Tax Loss Harvesting CAUTION! Wash Sale Rules CAUTION! Increase in following year tax rate 33

34 SIDEBAR: Beta Replication

35 SIDEBAR: Beta Replication Background on Capital Market Expectations: 1) Every security is the same (a probability distribution). 2) Every security is different. 35

36 SIDEBAR: Use of individual securities & Beta Replication Advantages of funds - Diversification - Professional management - Reduced transaction costs Disadvantages of funds - Expenses (loads, expense ratios) - Incomplete control of portfolio 36

37 SIDEBAR: Use of individual securities & Beta Replication 6% 4% 2% 52 Week (Weekly Returns) Allocation Name Mkt. Cap Risk 1 Yield ($) (%) Exxon Mobil Corp (XOM) % 3.30% 1,000, % (1) Risk is measured as the daily standard deviation of returns over a trailing 3 year period. (2) Data as of 12/31/2016 0% (2%) (4%) (6%) (10%) (5%) 0% 5% 10% Market Beta: 0.43 Avg. Weekly Return: R Square: 0.14 Annualized Risk: 0.39% 15.26% 37

38 SIDEBAR: Use of individual securities & Beta Replication 6% 4% 2% 0% (2%) (4%) 52 Week (Weekly Returns) Allocation Name Mkt. Cap Risk 1 Yield ($) (%) Amazon.com Inc (AMZN) % 0.00% 100, % Walmart Inc (WMT) % 2.89% 100, % Exxon Mobil Corp (XOM) % 3.30% 100, % JPMorgan Chase & Co (JPM) % 2.13% 100, % Johnson & Johnson (JNJ) % 2.73% 100, % Boeing Co (BA) % 2.80% 100, % DowDuPont Inc (DWDP) % 3.22% 100, % Apple Inc (AAPL) % 1.93% 100, % AT&T Inc (T) % 4.51% 100, % NextEra Energy Inc (NEE) % 2.91% 100, % (1) Risk is measured as the daily standard deviation of returns over a trailing 3 year period. (2) Data as of 12/31/2016 (6%) (10%) (5%) 0% 5% 10% Market Beta: 0.72 Avg. Weekly Return: R Square: 0.82 Annualized Risk: 0.35% 10.44% 38

39 SIDEBAR: Use of individual securities & Beta Replication 6% 4% 2% 0% (2%) (4%) (6%) 52 Week (Weekly Returns) (8%) (10%) (5%) 0% 5% 10% Market Beta: 0.93 Avg. Weekly Return: R Square: 0.96 Annualized Risk: 0.29% 12.50% (1) Risk is measured as the daily standard deviation of returns over a trailing 3 year period. (2) Data as of 12/31/2016 Allocation Name Mkt. Cap Risk 1 Yield ($) (%) Amazon.com Inc (AMZN) % 0.00% 30, % The Home Depot Inc (HD) % 2.06% 30, % Walt Disney Co (DIS) % 1.43% 30, % Netflix Inc (NFLX) % 0.00% 30, % Walmart Inc (WMT) % 2.89% 26, % Procter & Gamble Co (PG) % 3.18% 26, % Coca-Cola Co (KO) % 3.38% 26, % Exxon Mobil Corp (XOM) % 3.30% 30, % Chevron Corp (CVX) % 3.64% 30, % Berkshire Hathaway Inc (BRK.B) % 0.00% 32, % JPMorgan Chase & Co (JPM) % 2.13% 32, % Visa Inc (V) % 0.75% 32, % Bank of America Corporation (BAC) % 1.13% 32, % Citigroup Inc (C) % 0.71% 32, % Johnson & Johnson (JNJ) % 2.73% 30, % UnitedHealth Group Inc (UNH) % 1.48% 30, % Pfizer Inc (PFE) % 3.69% 30, % Merck & Co Inc (MRK) % 3.14% 30, % AbbVie Inc (ABBV) % 3.64% 30, % Boeing Co (BA) % 2.80% 33, % 3M Co (MMM) % 2.49% 33, % Honeywell International Inc (HON) % 2.14% 33, % DowDuPont Inc (DWDP) % 3.22% 15, % PPG Industries Inc (PPG) % 1.65% 15, % Simon Property Group Inc (SPG) % 3.66% 15, % Crown Castle International Corp (CCI) % 4.15% 15, % Apple Inc (AAPL) % 1.93% 30, % Alphabet Inc (GOOG) % 0.00% 30, % Microsoft Corp (MSFT) % 2.37% 30, % Facebook Inc (FB) % 0.00% 30, % Cisco Systems Inc (CSCO) % 3.28% 30, % Intel Corp (INTC) % 2.87% 30, % Oracle Corp (ORCL) % 1.56% 30, % AT&T Inc (T) % 4.51% 15, % Verizon Communications Inc (VZ) % 4.26% 15, % NextEra Energy Inc (NEE) % 2.91% 15, % Duke Energy Corp (DUK) % 4.33% 15, % 39

40 SIDEBAR: Use of individual securities & Beta Replication 8% 6% 4% 2% 0% (2%) (4%) 52 Week (Weekly Returns) (6%) (10%) (5%) 0% 5% 10% (1) Risk is measured as the daily standard deviation of returns over a trailing 3 year period. (2) Data as of 12/31/2016 Allocation Name Mkt. Cap Risk 1 Yield ($) (%) General Mills Inc (GIS) % 3.01% 10, % Merck & Co Inc (MRK) % 3.14% 10, % Cisco Systems Inc (CSCO) % 3.28% 10, % MetLife Inc (MET) % 3.28% 10, % International Business Machines Corp % 3.31% 10, % Caterpillar Inc (CAT) % 3.32% 10, % International Paper Co (IP) % 3.36% 10, % HP Inc (HPQ) % 3.40% 10, % Emerson Electric Co (EMR) % 3.42% 10, % Valero Energy Corp (VLO) % 3.51% 10, % Exelon Corp (EXC) % 3.56% 10, % American Electric Power Co Inc (AEP) (A % 3.61% 10, % AbbVie Inc (ABBV) % 3.64% 10, % Cogent Communications Holdings Inc (C % 3.65% 10, % Dominion Energy Inc (D) (D) % 3.66% 10, % Pfizer Inc (PFE) % 3.69% 10, % The Mosaic Co (MOS) % 3.75% 30, % Weyerhaeuser Co (WY) % 4.12% 30, % CenterPoint Energy Inc (CNP) (CNP) % 4.18% 30, % Verizon Communications Inc (VZ) % 4.26% 30, % General Motors Co (GM) % 4.36% 30, % PPL Corp (PPL) (PPL) % 4.46% 30, % Philip Morris International Inc (PM) % 4.50% 30, % AT&T Inc (T) % 4.51% 30, % FirstEnergy Corp (FE) (FE) % 4.65% 30, % Entergy Corp (ETR) (ETR) % 4.66% 30, % Ford Motor Co (F) % 4.95% 30, % Las Vegas Sands Corp (LVS) % 5.39% 30, % Consolidated Communications Holding % 5.77% 30, % Blackstone Group LP (BX) % 6.14% 30, % Plains All American Pipeline LP (PAA) % 8.21% 30, % Camden Property Trust (CPT) % 8.62% 30, % CenturyLink Inc (CTL) % 9.08% 72, % Annaly Capital Management Inc (NLY) % 12.04% 72, % Frontier Communications Corp (FTR) % 12.43% 72, % AGNC Investment Corp (AGNC) % 12.69% 72, % Equity Residential (EQR) % 20.22% 72, % 40

41 Beta Replication Things to consider: - Attribution of returns / risk to stocks and sector levels. - Overall level and sources of risk. 41

42 SIDEBAR: Use of Individual Securities & Beta Replication Use of individual securities allows for greater flexibility with: 1) Tax management in the portfolio. a) Tax Loss/Gain Harvesting b) Asset Locating 2) Customizing to achieve client goals. a) Portfolio Tilts 42

43 SIDEBAR: Use of individual securities & Beta Replication Unrealized Asset Class Amount ($) % ST Gain/Loss Cash & Equivalents $1, % $15 U.S. Stock 50, % 3,000 International Stock 20, % (2,000) U.S. Bond 20, % 500 International Bond 5, % (500) Commodities 4, % 750 TOTAL $100, % $1,765 43

44 SIDEBAR: Use of individual securities & Beta Replication Unrealized Asset Class Amount ($) % ST Gain/Loss Cash & Equivalents $1, % $15 U.S. Stock 50, % 3,000 Stock #1 3, Stock #2 6,949 (593) Stock #3 5, Stock #4 5, Stock #5 6, Stock #6 910 (1,002) Stock #7 7, Stock #8 2, Stock #9 6,689 (436) Stock #10 4,857 1,888 International Stock 20, % (2,000) U.S. Bond 20, % 500 International Bond 5, % (500) Commodities 4, % 750 TOTAL $100, % $4,766 44

45 Strategy #5: Asset Location Applies when a person/family has multiple accounts in a portfolio, some of which have different tax nature. Account Types by Tax Status: Taxable Accounts Individual, Joint, trust, corporate, etc. Tax Deferred IRA, Simple IRA, SEP, 401(k), annuities Tax Free Roth IRA, 401(k) Roth Option 45

46 Strategy #5: Asset Location Taxable Account Tax-Deferred Account Total Portfolio 60% 40% 40% + = 60% 60% 40% Taxable Account Tax-Deferred Account Total Portfolio 100% 20% + = 80% 60% 40% 46

47 Strategy #5: Asset Location General Rules of Thumb: 1) Income Producing Assets Tax Deferred Accounts 2) Non-Income Producing Taxable Accounts 3) Qualified Dividends Taxable Accounts 4) High Appreciating Assets Tax Free Accounts 5) Alternative Strategies Tax Free Accounts* 47

48 Strategy #5: Asset Location - Assume $1,000,000 Portfolio ($500k in Taxable account &$500k IRA). - 37% Tax Rate, 20% LTCG rates, 3.8% NIIT. - Dividend yield of 2% & Interest of 5%. - Target portfolio allocation of 60% equity and 40% bonds. Dividends & Interest Taxes on Current Income After-Tax Income Return Equal Allocation $36,000 ($6,324) $29,676 Asset Location $36,000 ($2,380) $33,620 $0 $3,944 $3,944 48

49 Strategy #5: Asset Location Requires careful consideration of the following: 1) Required Contributions/Distributions from Account 2) Rebalancing Frequency 3) Size of Accounts 4) Transaction Fees for Trading 5) Tax Sensitivity of Client a) Long Term (wealth transfer & expected change in marginal rates) b) Short Term (marginal tax rate) 6) Client Behavioral Bias 49

50 Strategy #6: Portfolio Tilts Strategy: Use individual securities or sector tilts to shape portfolio tax attributes. Benefit: Customized tax minimization strategy while keeping portfolio goal on target. 50

51 Income Income Growth Growth Growth Strategy #6: Portfolio Tilts Building portfolios with individual stocks & bonds allows for greater customization to be tax efficient. Income 51

52 Strategy #6: Portfolio Tilts 52

53 Strategy #6: Portfolio Tilts Level 1 Tilt Using securities with different yield/growth attributes. Keeping sector allocation on target. Level 2 Tilt Use securities with different yield/growth attributes. Alter sector allocation to influence portfolio even more. 53

54 Other Portfolio Related Strategies

55 Opportunity Zones An investor is able to defer recognition of eligible gains from the sale or exchange of property by reinvesting the eligible gains in a Qualified Opportunity Zone Fund (QOF). *Must roll over the eligible gains into a QOF within 180 days of the sale or exchange of the property that created the eligible gains. 57

56 Opportunity Zones Qualified Opportunity Zone Funds Can Be: 1) Single Asset Entity 2) Diversified Fund Note: OZ Funds must hold 90% of their property in qualified opportunity zone property. Qualified OZ property includes newly issued stock, partnership interest, or business property. Limited to equity investment. 58

57 Opportunity Zones Benefits: 1) Tax Deferral Defer payment of taxes on any capital gains invested into a QOF. The deferred gain would be recognized on December 31, 2026 or the date the investment in the fund is sold, whichever is earlier. 2) Step-Up in Basis The tax on the original capital gain is reduced by 10% if the investment in the QOF is held by the taxpayer for at least five years. It is reduced by an additional 5% if held for at least seven years, thereby eliminating tax on up to 15% of the original gain. 3) Tax Free Growth Pay $0 taxes on gains from investment in a QOF if the investment is held for 10 years. 59

58 Opportunity Zones Investor A Investor B Investor C (Within 180 days from gain) General Partner QOF QOF Partnership (Or direct ownership of QOZ business property) Operating Business - New Business - Existing business expansion into OZ. - Improving existing business. Real Estate - New construction - Substantial improvement (100%) 60

59 Opportunity Zones - There are diminishing benefits from waiting longer to invest. - To receive full 15% step-up in basis the investor would have to invest no later than December 31, After that the investor would not be able to enjoy the full 7 year benefit since taxes on gains must be paid in April of Year Roll over gain into OZ fund (defer tax on gain) Opportunity Fund Timeline Year Tax on original capital gains is reduced by 10% Year Tax on original capital gain is reduced by additional 5% (15% total) Year All capital gains taxes eliminated on OZ fund profits Year Pay taxes on original deferred capital gains (less the 15% reduction) 61

60 Opportunity Zones June 1, 2018 Taxpayer sells assets that generate $1M of capital gain July 1, 2018 Taxpayer contributes entire $1M of capital gain to a Qualified Opportunity Fund (within 180 days) - Taxpayer is deemed to have a $0 basis in their QOF investment - QOF Invests the $1M in Qualified Opportunity Zone Property 62

61 Opportunity Zones July 1, 2023 Taxpayer s basis in investment in QOF increases from $0 to $100k (After 5 years) July 1, 2025 Taxpayer s basis in investment in QOF increases from $100k to $150k (After 7 years) Dec 31, 2026 $850K of the $1M of deferred capital gains are taxed and the basis in the QOF investment increases to $1M Dec 31, 2026 Taxpayer sells their investment for $2M. Basis in the investment is deemed to be FMV. No tax on appreciation in investment. 63

62 Opportunity Zones The Opportunity Zone program is designed to incentivize long-term investments: Investment Length Fewer than 5 years Benefits Received Deferred payment of existing capital gains until the date that the Opportunity Fund investment is sold or exchanged 5 7 years Benefits above, plus 10% of tax on existing capital gain is canceled 7 10 years Deferred payment of existing capital gains until December 31, 2026 or the date that the Opportunity Fund investment is sold or exchanged (whichever comes first), plus 15% of tax on existing capital gain is cancelled. Greater than 10 years Benefits of 7 10 year investment, plus investors pay no capital gains tax on the Opportunity Fund investment (investments are exempt from any capital gains beyond those which were initially deferred) Note: All capital gains realized by an investor in the 180 days before an Opportunity Fund investment are eligible for the tax benefits of investment in Opportunity Funds. 64

63 Opportunity Zones Investment Assumptions Capital Gain $1,000,000 Targeted IRR 12.0% Annual Preferred Return 6.0% Capital Gain Tax Rate 23.8% Ordinary Income Tax Rate 37.0% With OZ Fund Investment Without OZ Fund Date Before Tax After Tax Before Tax After Tax Initial Inv. ($1,000,000) ($1,000,000) ($1,000,000) ($762,000) Year 1 (2019) 60,000 37,800 45,720 28,804 Year 2 (2020) 60,000 37,800 45,720 28,804 Year 3 (2021) 60,000 37,800 45,720 28,804 Year 4 (2022) 60,000 37,800 45,720 28,804 Year 5 (2023) 60,000 37,800 45,720 28,804 Year 6 (2024) 60,000 37,800 45,720 28,804 Year 7 (2025) 60,000 37,800 45,720 28,804 Year 8 (2026) 60,000 (200,200) 45,720 28,804 Year 9 (2027) 60,000 37,800 45,720 28,804 Year 10 (2028) 60,000 37,800 45,720 28,804 Exit Investment 2,300,000 2,300,000 ` 1,752,600 1,516,837 TOTAL AFTER-TAX $2,440,000 $1,804,873 IRR 12.00% 9.16% 12.00% 6.12% 65

64 Opportunity Zones Example of Gain Deferral from Investing $100,000 at 7.0% Return Investment Increase in Qualified OZ Taxable Not Taxable Year Value Adj. Basis Fund Return Capital Gain Capital Gain Year 0 $100,000 $0 $0 $100,000 $0 Year 1 107, , ,000 0 Year 2 114, , ,490 0 Year 3 122, , ,504 0 Year 4 131, , ,080 0 Year 5 140,255 10,000 40, ,255 10,000 Year 6 150,073 10,000 50, ,073 10,000 Year 7 160,578 15,000 60, ,578 15,000 Year 8 171,819 15,000 71, ,819 15,000 Year 9 183,846 15,000 83, ,846 15,000 Year ,715 15,000 96,715 85, ,715 66

65 Common Portfolio Mistakes

66 Common Mistakes 1) Inappropriate Use of Muni s 2) Overtrading (not qualified dividends and STCG) 3) Higher Fees to Avoid Taxes 4) Poor Investments to Avoid Taxes 5) Getting Off Target (not Beta replicating) 6) Wash Sales 7) Putting MLPs into IRAs. 68

67 Where to Turn for Help? 6 9

68 A CPA Financial Planner and a CPA/PFS are trusted advisors who Operate at the highest professional level, acting in the clients best interest. Integrate advanced tax planning concepts with the entire financial and investment plan. Adhere to high standards as required by the Code of Professional Conduct and the Statement on Standards in PFP Services Are regulated by state boards of accountancy. 70

69 Consumer 71

70 360 degrees of financial literacy 360financialliteracy.org 72

71 Questions?

72 Disclaimer: The information contained herein is for informational purposes only and is not intended to provide tax, legal, or investment advice. The information is compiled directly from third-party sources and is believed to be accurate and reliable. Such information, however, is presented without warranty of any kind. All investing involves risk, including the loss of principal. Past performance should not be taken as an indication of future performance, and no representation of any kind is made as to the future performance of the investments described herein. RoseCap Investment Advisors, LLC ("RoseCap") does not guarantee the timeliness, accuracy, completeness, or adequacy of the information. RoseCap is not soliciting any action based upon such information, or endorsing any recommendation or opinion expressed by this report. By reading or listening to this presentation you acknowledge and agree that any and all use you make of the information is solely at your own risk and without recourse to RoseCap, its affiliates, or any independent data providers. All presentation content, including; information, data, analysis, opinions, report layouts, and formatting is the intellectual property of RoseCap. No content herein (including format, data, model or output therefrom) or any part thereof (content) may be modified, reverse-engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of RoseCap. The content shall not be used for any unlawful or unauthorized purposes. Making investments involves risk and should not be done without the assistance and/or guidance of a professional. This report is not intended to serve as such assistance or guidance. The information provided herein should only be reviewed with the assistance of a RoseCap Investment professional. About RoseCap RoseCap Advisors is a fee-only, independent, investment advisory firm. We provide portfolio management, financial planning, and retirement plan services to both institutions and individuals & families. While investment returns can never be guaranteed, RoseCap does guarantee that we will work with honesty and integrity to provide unprecedented client service and to do what is best for the client. 244 N. 7th Street Grand Junction, CO Phone: (970) Contacts: Matthew H. Rosenberg, CPA, CFA matt.rosenberg@rosecap.com (970) , Option 2 Ethan Corman, CFA, CAIA Ethan.corman@rosecap.com (970) , Option 3 A Better Business Model RoseCap is an independent, fee-only, investment advisor because we believe this provides the best level of service for our clients. As an independent advisor, RoseCap is free from the influence of large institutions. Also, as a Registered Investment Advisor under the Investment Advisers Act of 1940 we are obligated to act as a fiduciary on behalf of our clients. Fiduciary duty is not only something that RoseCap accepts, but it is something we welcome. In addition to providing objective investment advice to our clients, we avoid selling high commission products such as life insurance and annuities to clients. Taking the role of a trusted advisor rather than selling investment products is something that is very important to RoseCap, and is hopefully important to our clients as well. Ethical and Professional Standards RoseCap has adopted (or is in process of adopting) a set of codes, standards, and guidelines that we believe are among the highest in the investment industry. These include the CFA Institute s Code of Ethics and Standards of Professional Conduct, the Asset Manager Code of Professional Conduct, and the Daniels Fund Ethics Initiative. 74