Probably a naive question but want to get it out there. You showed AVDV currently has 3.41% yield, 6.95% FTC, 75% QDI. I'm considering funds like AVGV/AVGE in a taxable and am evaluating international consequences. I just found old BH posts that mentioned there is a $20k limit for FTC. Is this $20k just based on the QDI (75% in this case), or would it be based on whatever the actual foreign amount paid is (6.95%), i.e. the former would trigger at $782k ($20,000/(.0341*.75))? I'm surprised to see the FTC is so small (6.95%). My outward guess was that the entire dividend would be withheld for the most part.grabiner wrote: ↑Sun Feb 05, 2023 8:22 pm Here is 2022 data on the components of the tax cost of value factor ETFs, and of Vanguard's popular non-factor alternatives (both value and blend), as guidance for which ETFs should be held in a taxable account. I posted similar data for the last two years as 2021 tax costs for value ETFs and  Tax costs for US and international value ETFs.
In 2022, emerging markets yields were three times US stock yields. Thus emerging markets were poor choices for a taxable account, whether you are a factor investor or not. Most developed-markets ETFs were somewhat less tax-efficient than the US counterparts. However, VSS had an extremely large foreign tax credit, which made it very tax-efficient (unless you run into a foreign tax credit limitation on Form 1116). If you hold both blend and factor funds, the blend funds were more tax-efficient in 2022, with the possible exception of emerging markets (AVES is in its first year and emerging markets were anomalous in 2022).
There is data for a few pairs of ETFs competing in the same segment. For US value, the tax differences are very small, and part of the dividend yield difference is the result of Vanguard having lower expenses (0.13%) than Avantis (0.20% for a 50/50 split) than DFA (0.29%); taxes shouldn't affect your choice of fund. For international large-cap value, IVLU and AVIV have very different profiles but similar costs; AVIV, with a lower dividend yield but less foreign tax, is more tax-efficient if you pay a high tax rate on qualified dividends (living in a high-tax state, or paying 23.8% rather than 15% federal because of high income). In an IRA, prefer AVIV because there is less lost foreign tax. DFIV has an even higher yield, and the estimated foreign tax is lower, so it is an inferior choice for a taxable account.
For each fund, the dividend yield is computed as the taxable dividend divided by the 12/30/22 share price. Note that this will be more than the distribution yield for international funds, because of the foreign tax credit.
To compute your own tax cost, take
Dividend yield * [(Qualified percentage*QDI tax rate)+((1-Qualified percentage)*normal tax rate)-FTC]
For example, a fund with 70% qualified dividends and 8% foreign tax has a tax cost in a 24% bracket of (.7*.15+.3*.24-.08)=9.7% of its dividend yield, or 0.19% if the dividend yield is 2.00% (and the distribution yield is 1.84%).
DFA does not publish the foreign tax credit amount directly. The foreign tax from DFIV is estimated from the annual report, which gives the foreign tax as a percentage of income in the fiscal year ended 10/31/22; the dividend yield is obtained from the distribution yield by dividing by (1-6.19%). DFA also has value ETFs for US small-cap, US large-cap, and emerging markets with less than one year of data; these may be included next year.
Code: Select all
Ticker Name Yield FTC Qualified VTI Vanguard Total Stock Market 1.66% 0 94% VB Vanguard Small-Cap 1.54% 0 78% VBR Vanguard Small-Cap Value 2.03% 0 82% AVLV Avantis US Large-Cap Value 2.00% 0 100% VFVA Vanguard Factor Value 2.21% 0 100% DFUV DFA US Marketwide Value 1.74% 0 100% AVUV Avantis US Small-Cap Value 1.74% 0 100% VXUS Vanguard Total International 3.34% 7.85% 74% VSS Vanguard FTSE Ex-US Small-Cap 2.71% 15.48% 73% IVLU iShares MSCI Factor Value (large-cap) 3.91% 8.21% 100% AVIV Avantis International Large-Cap Value 2.97% 4.52% 89% DFIV DFA International Value 4.30%* 6.19%* 100% AVDV Avantis International Small-Cap Value 3.41% 6.95% 75% VWO Vanguard Emerging Markets 4.49% 8.47% 24% AVES Avantis Emerging Markets Value 4.07% 9.12% 55% * - not published by fund provider; estimated from last annual report
Avantis: ETF Tax Information (XLS) (currently, the "Tax Distribution Information" is for 2021)
DFA: Tax Sheet (In the Document Center, click on the Tax Sheet for any ETF) and DFIV Annual Report
iShares: 2022 Distribution Summary Information
Vanguard: Vanguard funds that are eligible for the foreign tax credit (PDF) and Vanguard funds that distributed qualified dividend income. Note that Vanguard's reported foreign tax percentage is the percentage of the distribution amount, while the number in the table above is the percentage of the total dividend. For example, if a fund has a $100 dividend and $10 is withheld as foreign tax, the table would show 10/100=10%, while Vanguard would report 10/90=11.11%.
(Edited to correct AVUV and VWO yields)
(Later edit to add DFIV)
Once the $20k figure is breached or once you make it to 32% tax bracket, is it only the excess that gets the downward adjustment or is it the entire yielded amount?