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Year-end financial planning is tricky — and surprise portfolio income can derail your tax strategy, experts say.
As the calendar winds down, some investors are eyeing “tax gain harvesting,” or strategically selling profitable brokerage account assets during lower income years. Depending on earnings, you could qualify for the 0% capital gains bracket, and won’t incur taxes when selling investments.
But your 2025 tax projections must be precise, or the move could be more costly than expected, according to certified financial planner Cody Garrett, founder of Measure Twice Planners in Houston.
Many investors are sitting on significant portfolio gains as the stock market hovers around record highs. Despite recent volatility, the S&P 500 was up around 16% year-to-date, as of mid-day on Dec. 15.
Tax gain harvesting offers a few possible benefits. You could access profits or rebalance your brokerage account without boosting your income. You can also sell and repurchase assets to “reset your basis,” or the original purchase price, to save on future taxes.
If you’re planning to use the strategy before year-end, here are some key things to know.
Taxable income limit for 0% capital gains
If you own assets for more than one year, the profits qualify for long-term capital gains, taxed at 0%, 15% or 20%. There’s also a 3.8% net investment income tax for some higher earners.
For 2025, there’s a taxable income limit of $48,350 for single filers or $96,700 for married couples filing jointly for the 0% capital gains bracket. Those thresholds are higher in 2026.
You calculate taxable income by subtracting the greater of the standard or itemized deductions from your adjusted gross income. You add any profitable investments sold to your total.
Year-end income from ETFs and mutual funds
“I think a lot of people forget about qualified dividends,” which typically are classified around year-end by custodians like Vanguard, Fidelity or Schwab, said Garrett.
A “qualified dividend,” paid by domestic and certain foreign corporations after a specific holding period, receives long-term capital gains tax treatment. By contrast, “nonqualified” or “ordinary” dividends are subject to regular income tax rates. Both count as taxable income.
Plan for year-end ETF or mutual fund income
While mutual funds typically provide estimates for year-end payouts, you may not know the exact amount until you receive it. Similarly, you may not know whether dividends are qualified or nonqualified until year-end.
However, if your investments are similar to last year, you could review your previous year’s tax return for estimates, according to CFP Michael DeMassa, founder of Forza Wealth Management in Sarasota, Florida.
“The good thing about the 0% capital gains rate is, it’s not a cliff,” he said. If you exceed the taxable income limit, you’ll pay 15% or 20% on the amount you’re over the 0% bracket.