Welcome to Extreme Investor Network, where we provide expert advice and insights on all things personal finance. Today, we’re talking about a smart strategy you can use to minimize your tax liability at year-end by swapping mutual funds for exchange-traded funds (ETFs).
As we approach the end of the year, many mutual funds distribute capital gains to shareholders, which can result in a tax bill for investors. By swapping assets for ETFs, you can potentially avoid this capital gains payout for 2024 and beyond. Unlike most mutual funds, ETFs generally do not have an annual payout, helping to reduce your ongoing tax burden.
One strategy to consider is “capital gain harvesting,” where you strategically sell profitable assets while in a lower tax bracket to minimize taxes. This can be particularly beneficial for investors who fall into the 0% long-term capital gains bracket, which applies to assets owned for more than one year. For 2024, this bracket applies to taxable income of $47,025 or less for single filers and $94,050 or less for married couples filing jointly.
To take advantage of this strategy, you’ll need to sell your mutual funds before the fund’s record date to avoid receiving the distribution. By planning ahead and monitoring your taxable income throughout the year, you can make more accurate annual tax projections and potentially reduce your tax bill.
At Extreme Investor Network, we believe in empowering individuals to make informed decisions about their finances. By staying informed and implementing smart tax strategies like swapping mutual funds for ETFs, you can potentially reduce your tax liabilities and keep more of your hard-earned money in your pocket. Stay tuned for more expert insights and advice on personal finance topics to help you achieve your financial goals.