Some investors can "harvest capital gains" to avoid year-end mutual fund payouts, advisor advises.

• By exchanging assets for exchange-traded funds, you can avoid paying capital gains taxes in 2024.
• Experts suggest that if your income is low enough, selling profitable brokerage account funds could be tax-free, triggering capital gains.
• If you own mutual funds for more than one year, you won't be taxed on their sale.

By exchanging assets for exchange-traded funds, you can avoid paying capital gains taxes in 2024 and beyond.

Most ETFs do not have an annual payout, which helps reduce ongoing taxes. In contrast, some mutual funds distribute yearly capital gains to shareholders, typically in November and December.

Experts suggest that some investors can sell mutual funds for ETFs without incurring capital gains taxes.

Certain investors can strategically sell profitable assets while in a lower tax bracket to swap mutual funds for ETFs, according to Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

Experts suggest monitoring earnings, including capital gains, to maximize tax breaks linked to adjusted gross income.

According to Lucas, eliminating year-end mutual fund distributions can improve the accuracy of annual tax projections.

He said, "It's nice to remove the magnitude of that variable."

The 0% capital gains bracket

If you own mutual funds for more than one year, you won't be taxed on their sale.

In 2024, you'll be in the 0% tax bracket if your taxable income as a single filer is $47,025 or less, or as a married couple filing jointly, your taxable income is $94,050 or less.

Your taxable income is lower than your total income because deductions are subtracted from your adjusted gross income.

If you are considering trading mutual funds for ETFs in the 0% bracket, it is a great idea if everything else aligns and you don't have a lot of other income, according to CFP JoAnn May, the principal and co-founder at Forest Asset Management in Riverside, Illinois. She is also a certified public accountant.

She advised closely monitoring your taxable income.

When calculating your taxable income for the year, you must include gains from mutual fund sales.

Sell before the mutual fund's record date

To swap mutual funds for ETFs, you must sell before the mutual fund's record date, or "date of record," otherwise, you will still receive the distribution even if you sell before the payable date.

May stated that mutual funds usually provide estimates of year-end payouts prior to the record date, allowing you to approximate the amount you'll receive.