After 2025, your tax bracket may change, which could impact your brokerage account.

• If Congress does not act, tax breaks enacted by former President Donald Trump, including lower federal income tax brackets, will expire after 2025.
• Your brokerage account may be affected by higher brackets on short-term capital gains, which apply to assets held for one year or less.
• Experts suggest minimizing capital gain payouts by investing in exchange-traded funds.

It's crucial to understand how investments in a brokerage account can affect your taxes, particularly in light of potential future rate increases.

If Congress does not act, tax breaks enacted by former President Donald Trump, including lower federal income tax brackets, will expire after 2025.

Experts predict that higher rates after 2025 may affect some brokerage accounts as investors are required to pay annual taxes on earnings.

If you sell investments that you have owned for one year or less, the profits incur "short-term capital gains," or regular income taxes. Similarly, mutual fund distributions may be subject to regular income taxes if the fund manager owned the underlying assets for one year or less.

Samantha Pahlow, wealth management chair of Ferguson Wellman Capital Management in Portland, Oregon, advised avoiding short-term gains as much as possible, according to her statement on CNBC's 2024 FA 100 list where her company ranked No. 10.

Experts predict that after 2025, the cost of short-term gains in a brokerage account could increase, with brackets scheduled to revert to 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.

The uncertain control of the Senate, House, and White House may hinder Congress from allowing lower brackets to sunset.

Exchange-traded funds are 'more efficient' for taxes

Experts advise investors to take into account the tax implications of the assets they hold in their brokerage accounts, regardless of any future changes in tax laws.

Winston-Salem, North Carolina-based investment advisor representative Shea Abernethy stated that exchange-traded funds are likely to be more efficient than actively traded mutual funds with high turnover rates.

Capital gains payouts from actively managed mutual funds can occur even when investors haven't sold shares, resulting in a costly surprise at year-end.

Abernethy, who is also chief compliance officer for Salem Investment Counselors, which earned the No. 8 spot on the FA 100 list, stated that minimally-traded funds, such as ETFs or index funds, typically offer more year-to-year tax savings.

Mutual funds are outdated when it comes to tax efficiency, according to Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

Experts advise that while taxes are an important factor to consider, it's also crucial to take into account your risk tolerance, goals, and timeline when making an investing decision.