Links to 2023 Mutual Fund and ETF Year End Distributions
The following links take you to the details of funds that are paying out capital gains or dividends in 2023.
American Funds by Capital Group
Blackrock and iShares Mutual Funds
iShares ETFs (there are only 4 with distributions)
Janus Henderson 2023 Per Share Distribution Amounts
Vanguard 2023 Year End Distributions
Capital Gains 0% Rate
The first strategy for saving on your taxes in 2023 is harvesting capital gains in your brokerage accounts. Income taxes for the year are calculated by totaling all incomes (regardless of type), subtracting deductions, and then splitting your income into capital gains and other income types.
Capital gains tax rates use a different set of brackets from the ordinary income tax brackets. The following diagram shows the brackets for capital gains rates in 2023. The rates are 0%, 15%, and 20%.
If you are married filing jointly and your taxable income will be less than $89,250 in 2023, you will pay 0% on capital gains! The cutoff for singles is $44,625.
People at this income level are usually retired with no pension income and currently living off savings or investment income while waiting to claim Social Security.
If you fit this category and you plan to sell your investments for spending at some point during your lifetime, then harvesting the gains in years when you will pay no tax is a smart move. You can take some future tax liability off the table.
Since you are selling at a gain, you can buy the investment back once the sale clears and you have cash available in your account to trade. Your new cost basis will be higher.
If you never plan to sell these shares and instead pass them on to an heir or a charity, then there is no need to harvest the gains because those two recipients will not pay taxes on the gains. Heirs will get a step-up in basis and charities don’t pay taxes.
To implement this strategy correctly, and not end up paying tax, you need to predict what your taxable income will be for the year, so you can be sure the amount you sell will keep you under the 0% limit. This month, mutual fund companies release the expected per share dividend and capital gains they will pay out. You can find their estimates on their websites.
As an example, the following diagram shows a client’s portfolio holding in the Growth Fund of America. They have $98,225 of gains. They won’t be able to harvest all those gains in 2023, but they can harvest some and increase their cost basis for future sales above the current $46,752.
Harvest Tax Losses to Offset Capital Gains
If your income is too high to harvest any tax-free capital gains, you can still look through your brokerage accounts and possibly find opportunities for tax savings.
With last year’s market drops and this year’s mixed returns, you may have some losses in your accounts in either stock or bond funds. Recently, I have seen a surprising number of client positions that are at a loss.
By selling offsetting gains and losses, you will be able to eliminate some future gains while having no current taxes due.
Selling at a loss does make you susceptible to an IRS rule called the wash sale rule. This rule was put in place to stop people from taking losses and immediately buying back the same investment.
When you sell an investment at a loss, you or your spouse cannot buy it or a “substantially identical” stock or fund within the next 30 days. The easiest way to abide by the rule is to wait until the 31st day to buy the same investment back, but this leaves you open to missing a big move that could occur in the next month.
Another way to avoid breaking the rule is to buy something different. (The IRS has never defined the term “substantially identical”, but a fund from a different company or different asset class will suffice.)
A straightforward example of this would be someone whose portfolio is overweight in US stocks. This could be an opportunity to sell offsetting gains and losses and rebalance into some international or emerging market stocks.
After adding up the losses and gains of the trades you place, you are allowed to write off $3,000 of losses, but beyond a $3,000 loss, you must carry over the difference to your 2024 return.