Tax Considerations in Private Wealth Management

Hard Private Wealth Management Tax Considerations

During a recent client meeting, Sarah, a private wealth manager, is discussing tax-efficient investment strategies with her client, Mr. Adams, who has a sizable portfolio primarily composed of equities, real estate, and municipal bonds. Mr. Adams has expressed concerns about the tax implications of his investments, particularly in relation to capital gains and interest income. As part of her analysis, Sarah is considering the role of asset location, tax-advantaged accounts, and the potential impact of the client’s current tax bracket.

Given Mr. Adams's profile and investment strategy, which one of the following statements about tax considerations in private wealth management is MOST accurate?

Earnings from municipal bonds are tax-exempt at the federal level but may be subject to state taxes depending on the client's residency.

Short-term capital gains are typically taxed at the same rate as qualified dividends, which are favored due to their lower tax rates.

Taxable accounts should generally hold investments with higher expected returns and lower turnover, to optimize capital gains liability.

Hint

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