Time is running out for a set of money-saving provisions in the tax code, and now is a good time to get your portfolio in order and minimize levies, according to Bank of America. The Tax Cuts and Jobs Act (TCJA), which took effect in the beginning of 2018, overhauled the federal tax code. It roughly doubled the standard deduction, adjusted individual income tax brackets , lowered most of the rates and applied a $10,000 cap on the state and local tax deduction.
Unless Congress acts, a slate of provisions in the legislation will sunset at the end of 2025, which could rattle taxpayers. "TCJA expiration may mark the largest tax increase in history, worth $4.6 [trillion]," wrote Jared Woodard, investment and ETF strategist at Bank of America, noting that the aggregate tax burden on U.
S. households would rise by $2 trillion in the next five years. "In some estimates, the top fifth of households could pay 2-6% more of their income in taxes," he added.
With that backdrop, Woodard gave investors a few steps to help prepare their portfolios for the higher tax climate. Stick with tax-efficient ETFs In general, exchange traded funds are more tax efficient than their mutual fund counterparts. Mutual funds tend to have higher turnover – that is, buying and selling of underlying securities – and by law they must distribute capital gains.
Investors in mutual funds don't have to sell shares to be subject to taxable capital gains: A fund manager who sells some holdings to take profits or t.