5 Overlooked Tax Strategies That Can Save You Thousands

Introduction

Hosted by David Rath & Pat Kalish | Featuring Sarah Dorsey, CPA

Most investors know about Roth IRAs and 401(k)s, but true tax efficiency lies in lesser-known strategies. In this episode, Sarah Dorsey breaks down five powerful tactics that can dramatically reduce your lifetime tax bill—whether you’re building wealth or in retirement.

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1. Box Spreads: Turn Ordinary Income into Capital Gains

The Problem

Cash Drag: High-yield savings accounts generate interest taxed at ordinary income rates (up to 40.8% including NIIT).
Example: $1M earning 4% = $40,000 interest → $16,320 tax bill at top brackets.

The Solution

Box Spreads: Options strategy that converts interest-like income into 60% long-term capital gains(max 23.8%) + 40% short-term gains.
Result: Same $40,000 income → ~$9,520 tax (saving $6,800/year).
Catch: Not FDIC insured. Requires institutional execution (now available via ETFs).

"With rates at 5%, hiding cash in a savings account is like handing the IRS a blank check." —David Rath

2. Section 351 Exchanges: Diversify Concentrated Stock Tax-Free

Who It’s For

Investors with highly appreciated single stocks (e.g., NVIDIA bought in 2013).
Avoids triggering capital gains while unlocking diversification.

How It Works

Transfer concentrated positions + other assets into a new corporation.
Receive shares of a diversified ETF-like basket with transferred cost basis.
No tax due until eventual sale.

Key Insight: "This isn’t just for startups anymore. Wall Street’s figured out how to use it for ETFs."

3. Mega Backdoor Roth: Supercharge Tax-Free Growth

The Mechanics

401(k) total contribution limit: $69,000 ($76.5k if 50+) in 2024.
Beyond employee deferral ($23k), exploit after-tax contributions → convert to Roth.
Result: Up to $46,000/year into Roth vs. $7,000 via traditional Backdoor.

Ideal Candidate

High earners already maxing pre-tax 401(k) + IRA.
Critical: Must have plan allowing auto-conversions (avoid growth taxation).

Pro Tip: *"I’ve seen clients add $500k+ to Roth accounts over 10 years using this."* —Sarah Dorsey

4. Charitable Strategies: CRT vs. DAF vs. QCD

Strategy	Best For	Key Benefit
Charitable Remainder Trust (CRT)	Appreciated stock donors needing income	Tax deduction + lifetime income stream
Donor-Advised Fund (DAF)	Batching deductions	Front-load tax benefits; grant later
Qualified Charitable Distribution (QCD)	RMD-age donors	Satisfies RMDs and lowers AGI

2025 Alert: Tax laws change in 2026. Max deductions now while rules are favorable.

5. Qualified Opportunity Zones (QOZ): Defer + Eliminate Gains

The Deal

Reinvest capital gains (e.g., from real estate/business sale) into QOZ funds.
Defer tax until 2026 → 15% basis step-up → 0% tax on appreciation if held 10+ years.

Risks

Illiquidity: Funds locked for decade.
Rehab Requirements: Must significantly improve properties.

Who Should Consider: Investors with $500k+ gains from asset sales.