Tax Day Is Here. How to Pocket More of Your Portfolio's Return, According to Bank of America

Why It Matters

Improving tax efficiency can add a measurable edge to long‑term portfolio performance, directly increasing after‑tax wealth for investors. The strategies highlighted are actionable now, helping both individual and institutional clients reduce future tax liabilities.

Key Takeaways

• Tax‑aware portfolio delivered 7.4% post‑tax return versus 5.9%
• Prefer share buybacks; they avoid taxable dividend treatment
• Municipal bonds can offer tax‑equivalent yields up to 70 bps higher
• Direct MLP ownership steps up cost basis via return‑of‑capital
• Top buy‑rated MLPs: DT Midstream, Energy Transfer, Enterprise Products

Pulse Analysis

Tax efficiency has moved from a niche concern to a core pillar of portfolio construction. Bank of America’s 30‑year back‑test demonstrates that a modest shift toward tax‑aware allocation can lift after‑tax returns by more than a full percentage point annually. This “tax alpha” compounds dramatically over decades, turning what many view as a compliance cost into a strategic performance driver. Investors who ignore the tax dimension risk leaving money on the table, especially in an environment where ordinary income rates remain elevated.

One of the most straightforward levers is to prioritize share buybacks over qualified dividends. Buybacks are not taxable events for shareholders, whereas dividends trigger 0‑20% rates depending on income level. By channeling capital into buyback‑focused ETFs such as Invesco’s BuyBack Achievers (PKW), investors can capture corporate cash returns without immediate tax drag. Municipal bonds present another high‑impact tool; their federal tax exemption can translate to tax‑equivalent yields up to 70 basis points above comparable Treasurys. For a 32% bracket taxpayer, a 3% muni yield equates to a taxable 5.63% requirement, underscoring the sizable after‑tax advantage.

Master‑limited‑partnerships (MLPs) add a third layer of efficiency, especially when held directly. Direct ownership treats distributions as return‑of‑capital, raising the cost basis and deferring tax until the asset is sold. While MLPs generate Schedule K‑1s that can complicate filing, the net income boost often outweighs the administrative burden. Bank of America highlights three buy‑rated MLPs—DT Midstream, Energy Transfer, and Enterprise Products Partners—each delivering double‑digit price appreciation and attractive yields in 2026. By integrating these three tactics—buybacks, munis, and direct MLPs—investors can systematically shave tax drag and enhance long‑term wealth creation.