Tax Efficiency 2022 (this year adds Avantis to Vanguard and iShares)

[jcloudm]

This is a follow on to excellent work done by triceratop here and here and followed up by someone else in 2018 that I could never find and my own creations for 2020 here and 2021 here.

The google spreadsheet is here.

This spreadsheet assumes you bought $10,000 of each fund on 12/31/2021, and then calculates the taxes based on how many dividends the fund produced based on your marginal tax rate throughout the year. To use this sheet, just make a copy and update your marginal tax rates and state tax rates on the first tab.

I still do all of these things:

1. Calculate federal tax on non-qualified dividends and 199a dividends, column S.
2. Calculate federal tax on qualified dividends, column T.
3. Calculate federal tax on any long term capital gains, column U.
4. Calculate state tax on all dividends (qual/non-qual/199a/CG), column V.
5. Calculate federal deduction of 20% of the 199a dividends, column W.
6. Calculate state deduction of 20% of the 199a dividends, column X.
7. Sum all taxes, column Y.
8. Calculate Tax Efficiency (All taxes - foreign tax paid / $10,000), column AA.
9. Calculate total cost (Tax efficiency + expense ratio), column AC, copied to E.

This year I used the ICI format data from all three companies, so the inputs work the same. In prior years I was using different inputs for different companies, but this year is all the same. The input fields are still shaded green. I added a trends tab that aggregates my data from the past 3 years, with a sparkline so you can see the total cost trend. Note that the prior years (2020-2021) will not automatically update if you change the tax rates on the first tab.

These conclusions are the same as last year:

• Real Estate ETFs and fixed income funds are pretty tax inefficient and would be better in a tax deferred or tax free account

• Value funds are also relatively inefficient

• US Large Cap and US Small/Mid Cap are very efficient

• Differences between Vanguard and iShares are mostly insignificant except for a few funds

Here are some new conclusions:

• For the prior two years, IAGG had been much more efficient than BNDX, but in 2022 the result was the opposite.

• Last year, international funds across Vanguard and iShares were really inefficient, but 2022 was more like 2020. In 2021, even for high bracket taxpayers holding international funds in a taxable account added somewhere in the range of a 40-50 basis points of cost, but this did not repeat in 2022.

• That being said, international funds had some pretty different numbers between iShares and Vanguard within the same classes but there is not a clear pattern. IXUS looked great this past year.

• Avantis funds are generally higher total cost, which isn't surprising given their higher expense ratio and value tilt

I hope this is helpful! Please feel free to make a copy if you want to change the tax rates.

[Startled Cat]

Thanks for putting this together. The only real surprise for me is the gap between IXUS and VXUS. I'm used to IXUS coming out a bit more tax-efficient, but there's quite a delta this year.

[livesoft]

Many thanks as always for this! It will help answer some questions for many. For myself, we are now fully retired and in the withdrawal stage, so no more additions to our taxable accounts. That all means we are locked in to what have in taxable as we slowly sell off shares to pay expenses.

[sycamore]

I hope this is helpful! Please feel free to make a copy if you want to change the tax rates.

Another round of thanks for doing all that work!

When I made a copy of the spreadsheet, the Google "Copy document" dialog showed a "warning" prompt about an Attached Apps Script File, and that I should review it. The script file Code.gs contains only an empty "function myFunction()" . Did you mean to attach that to the 2022 spreadsheet? (The 2021 spreadsheet didn't have a similar script file.)

[jcloudm]

When I made a copy of the spreadsheet, the Google "Copy document" dialog showed a "warning" prompt about an Attached Apps Script File, and that I should review it. The script file Code.gs contains only an empty "function myFunction()" . Did you mean to attach that to the 2022 spreadsheet? (The 2021 spreadsheet didn't have a similar script file.)

Huh, let me try to fix that. I was thinking about using Apps Script to do some importing but just wound up doing it by hand. So I should be able to remove that. Thanks for the feedback.

[grabiner]

That being said, international funds had some pretty different numbers between iShares and Vanguard within the same classes but there is not a clear pattern. IXUS looked great this past year.

There are odd things going on with foreign tax. VXUS withheld a normal 8% of its dividend as foreign tax, while IXUS withheld 16%. And with small-cap, the advantage goes the other way; SCZ withheld 10%, which is already a bit higher than normal for an international fund, while VSS withheld 15%. (SCZ actually still had a lower tax cost than VSS, but that is not a real advantage; it has a lower dividend because it has a much higher expense ratio and does not include emerging markets.)

[AlohaJoe]

This is a follow on to excellent work done by triceratop here and here and followed up by someone else in 2018 that I could never find

I posted it as a comment in the 2017 thread, so that's probably why you couldn't find it.

viewtopic.php?p=4788420#p4788420

[greybus]

I believe VGIT and GOVT are treasury ETFs so their dividends (and capital gains?) should be tax exempt for state taxes right?

[grabiner]

I believe VGIT and GOVT are treasury ETFs so their dividends (and capital gains?) should be tax exempt for state taxes right?

Dividends are state tax-exempt. Capital gains on Treasuries are usually state-taxable; NJ is the only state I know in which they are not taxed.