Strategic Tax Mitigation
$5 million+ in investments
Most HNW portfolios lack a comprehensive, tax-optimized structure, inadvertently sacrificing significant wealth.
The Challenge:
Ordinary income (40.8% Federal + State) and short-term capital gains (40.8% Federal + State) often create the most significant drag on portfolio performance for high-net-worth investors. Traditional wealth management strategies frequently fail to address this reality. Most HNW portfolios lack a comprehensive, tax-optimized structure, affluent families inadvertently sacrifice significant wealth, leaving critical tax mitigation and advanced planning benefits unrealized.
Magnolia's Solution:
It is time to demand more from your portfolio. Utilizing existing taxable assets for a long/short overlay we create alpha potential (higher returns relative to the benchmark) and highly valuable short-term capital losses. We further diversify into tax-aware hedge funds that provide lower correlation to traditional stocks and bonds while passing through ordinary losses to offset earned income.
The Results.
High-Earning Employee
Profile
55 Years old - Married
Ordinary Income (W-2): $1 million
Traditional IRA Assets: $2 million
Taxable Assets: $3.5 million
Results Year 1
Tax-Aware Hedge Fund produces $750,000 ordinary loss.
Under the 2026 Excess Business Loss cap the couple may deduct $512,000 of business losses. The disallowed $238,000 of loss is carried forward as part of a Net Operating Loss (NOL) and available for use in future years.
The couple’s $1 million of ordinary income is reduced by $512,000 resulting in taxable income of $488,000 (51% Reduction in Taxable Income).
Business Owner
Profile
60 Years old - Married
Business Income (K-1): $1 million
Traditional IRA Assets: $2 million
Taxable Assets: $10 million
Results Year 1
Tax-Aware Hedge Fund produces $750,000 ordinary loss.
Under current tax law, taxpayers can deduct an unlimited amount of business losses against business income in the same tax year.
The couple’s $1 million business income is reduced by $750,000 resulting in taxable income of $250,000 (75% Reduction in Taxable Income).
The preceding are hypothetical examples for illustrative purposes only and do not reflect actual results. Magnolia Private Wealth does not provide legal or tax advice.
MAGNOLIA PRIVATE WEALTH TEAM FEATURED IN:
What's Next?
Your New Wealth Building Framework:
Magnolia’s tax-aware strategies are particularly powerful for high-net-worth investors facing specific wealth management challenges:
High-earning professionals: Partners or employees in professional services firms, medical practices, or other high-income businesses who need to offset substantial ordinary income year after year.
Executives with significant portfolios: Senior leaders with concentrated stock positions, restricted stock units, or substantial investment accounts who need systematic tax optimization alongside diversification.
Business owners planning liquidity events: Founders preparing for a sale who need to offset substantial capital gains.
•HNW individuals facing significant RMDs: Proactive tax-efficient Roth conversions can materially reduce future tax liability.
What You Need to Qualify:
SEC Qualified Purchaser Status: Generally defined as any natural person who owns not less than $5 million in investments, excluding their primary residence.
Taxable Assets: Most client planning scenarios require a minimum of $3.5 million of marginable securities (Cash, US Treasuries, ETFs, Mutual Funds, and Exchange traded stocks) held in a taxable brokerage account.
