Tax-Efficient Management of Equity and Equity Equivalents

Abstract

Equity positions can be bought and sold in five different ways, and each has a different tax result based on the form-driven nature of U.S. tax law. In addition, other transactions are economically equivalent to the five basic ways, and these economic equivalents, in turn, have different tax results. Thus, a thorough understanding of the practical application of the tax rules can help managers get the best possible tax result and the highest possible after-tax rate of return for their clients.