Taxes on Income-Generating Assets Taxable Accounts
I have savings which I mostly have funnelled into various income generating securities in a taxable account. This is mostly preferred stocks (PGF and individual preferred issuances), high dividend equities that I believe are good values, covered call strategy ETF’s (ETY), structured credit (i.e. ECC, GOF, OXLC, CLNC) and ultra short duration ETF’s. I have always known there would be tax liabilities but it beats sitting on cash and earning nothing. These savings have grown to the point where taxes are becoming quite significant and I need to be managing these better. I have focused too much on the securities themselves and not tax efficiency which I think is not smart on my end.
(1) What exactly constitutes a qualified dividend vs. an ordinary dividend?
(2) Any other tax shields I can use? My 401k and Roth accounts are maxed out each year so its not an option.
(3) I have thought about real estate investments, but I hate the lack of liquidity, transaction costs and I’m pessimistic about long-term real estate values in the city where I make a living. I have ruled this option out.
I am aware investing in equities and deferring potential capital gains years out is ideal as opposed to paying taxes on dividends and coupons each year, but I am not comfortable investing in a lot of equities right now b/c I think the valuations are stretched. I don’t want my liquidity tied upon into stocks. (~40% of my taxable account is in MINT, GSY, VCSH, ultra low duration ETFs that pay +3% which I hope to turn around into stocks at cheaper valuations at some point in the future). Deferring capital gains on equities for better tax treatment is not on my menu right now.
Any advice anyone can share? Thank you.
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