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I'll admit, I am pretty clueless when it comes to taxes. I have only bought and sold the GLD ETF in my Roth IRA so I don't have any tax considerations there. What if I bought and sold GLD or any other commodity ETF like DBA or USO in my taxable account? Isn't it a flat rate of taxing without regard to LT Cap Gains when you trade those things in a taxable account?
Bullitt, you are so good you're reading minds these days. :toung: I was reading an article on EFTs this morning that talked about EFTs and taxes ....Quote:
Originally Posted by Bullitt
"An appealing attribute in an ETF is its tax efficiency, but it should be noted that a few ETFs do have capital gains distributions." [but that is all it said on the subject.]
http://www.dailymarkets.com/stocks/2...ow-about-etfs/
...and I thought, "I'd better start an EFT thread on taxes." I get to the MB this morning and it's already here! Glad you asked the question so I didn't have to.
:)
Lady
You should still do that thread, but I just found what I was looking for.
Doesn't sound like a good idea for a taxable account. I'm guessing that's why people use the ETN's to buy their commodity tracking index.Quote:
While commodity ETFs do not hold actual stocks, they do own either the actual physical commodity itself, or a futures contract or a derivative. So, even if you do not sell the ETF, you will owe the government. Sixty percent of your gains are taxed at 15% for long-term and 40% of your gains are taxed at the going rate of your general income.
When you invest in the actual physical commodity with a fund such as iShares COMEX Gold Trust (IAU),the IRS taxes them as collectibles, earning them a higher long-term gain rate at 28%, not 15% charged to stocks.
http://www.etftrends.com/2008/08/whe...ent-breed.html
my taxable accounts generate more bizarre schedules than ever...keep those tax nightmare products in yer IRA...best
foreign chit has been the most frustrating.... paying canadian taxes on divs from ufeff (U308 loser) was one of my favorite experiences
Yeah, I've got a nightmare on my hands this year. I've got foreign Mutual Funds also.
Don't have to 'cause you already did. Cool!:cool:Quote:
Originally Posted by Bullitt
I have a new OneNotes section on ETF tax notes, and your information and tekno's comment about foreign taxes are already in it. Thanks!
Lady
ETF tax Cliff Notes from the Motley Fool:
"Tax Tales
You hear a lot about tax advantages with ETFs. Treat it like barroom gossip: exciting to hear, but probably an exaggeration.
Inevitable, like death: Don't be fooled by vague talk of ETFs' freedom from Uncle Sam. You still need to pay taxes on your own capital gains -- should you be fortunate enough to buy low and sell high -- as well as any dividends you receive. Of course, if your funds are in an IRA or employer-sponsored retirement plan, your gains are tax free until you start collecting. (If they're in a muy Foolish Roth IRA, everything is tax-free.)
Uncle Sam and the Fund: Beginning investors often do not realize that funds themselves incur capital gains taxes, the cost of which is borne (big shocker) by you, the fund holder, even if you don't sell a single share. The topic is complex and boring enough to spawn entire books, so here are the Cliffs Notes:
http://www.fool.com/etf/etf02.htm
- In general, the structure of ETFs tends to avoid the kind of outright selling that would trigger undistributed capital gains and other IRS nightmares. To understand why, think back to the ETF structure. For every ETF seller, there's a buyer.
- On the other hand, if a flood of investors decide to dump a mutual fund, the fund may need to sell the underlying holdings in order to raise the cash to pay out, and that would bring Uncle Sam with hat in hand. ETFs may also have to drop a few schillings into the taxman's cap, for instance, when the underlying index is changed.
- Keep in mind that the traditional fund industry and the ETF industry disagree on the extent of the ETF's advantage. Of course, they're competing for your investment dollar, so you should expect squabbles. Still, according to published reports, the Barclays iShares S&P 500 ETF made capital gains distributions while the Vanguard 500 mutual fund did not."
Lady
OK. I just bought Turbo Tax Deluxe and it looks like I can upload 1099's from Scottrade and T Rowe Price and the program will input the info automatically. :bigsmile:
This might not be news to everybody, but I'm actually excited about that minute detail.
Be advised if you do it online at TurboTax, Scottrade and T Rowe offer discounts.
This Morningstar article on ETFs and taxes had a lot of information that was new to me. Hope you find it of interest too. :) I was especially interested in the information on taxes on leveraged funds.
Your ETF Tax Questions Answered
03-18-09 | http://im.morningstar.com/im/dot_clear.gifhttp://im.morningstar.com/im/dot_clear.gifhttp://im.morningstar.com/im/dot_clear.gifPaul Justice is an ETF strategist with Morningstar
"...When held in an IRA, taxation is generally shielded in the following manners. First, because an IRA is not subject to capital gains taxation until withdrawal, the 60%/40% rule does not apply. Furthermore, you don't pay taxes on interest income in a tax-deferred account until funds are withdrawn. Finally (I'm sure you get the point by now), the IRA would become taxable if UBTI crossed a threshold, but these commodity-trading funds should not produce any UBTI. Again, there should be no UBTI to report because these funds do not engage in business activities.
If you chose to gain your commodity exposure from ProShares' lineup, your taxation should be slightly different. These funds do not limit themselves only to futures contracts; they also use swaps and options. Depending on which contract type is used, the 60%/40% taxation rule may not apply for all gains. However, you will still be taxed every year regardless of whether you sell the fund. You will have to take a closer look at your tax statement to determine your reportable income and capital gains.
Grantor Trust Rules
Another common structure employed by some commodity 'ETFs' is the Grantor Trust. The most prominent examples of this structure are SPDR Gold Shares (GLD), iShares COMEX Gold Trust (IAU), and iShares Silver Trust (SLV). Direct investments in precious metals are taxed at ordinary income rates (currently 28%) upon sale of the trust. Oddly enough, you might not receive either a K-1 or a Form 1099 for an investment here, so make sure you are diligent about your reporting.
If your Grantor Trust fund holds physical metals, like gold bullion, here is a taxation guide:
1) The fund holds physical metals.
2) You will be taxed upon sale at ordinary income rates.
3) Ordinary income rates are higher than capital gains rates.
4) The fund does not distribute realized capital gains.
5) The fund generates no interest income.
Leveraged and Inverse Funds
Leveraged and inverse-themed ETFs are another example of how the tax-efficiency that a vanilla ETF offers isn't always universal. In 2008, numerous funds of this type paid out eye-popping distributions to investors who held them in taxable accounts. Additionally, many investors were shocked to find out that regardless of how long they held these funds their gains were deemed short-term capital gains by the IRS. We discussed this issue in more detail in an article titled "The Tax Man Cometh for Leveraged and Inverse ETFs."
So, why do these leveraged exchange-traded products tend to be less tax efficient than their traditional counterparts? Unlike other ETFs, leveraged and short ETFs do not use a portfolio of exchange-traded assets (namely stocks and bonds) to track their benchmark index. Instead, they keep their assets in a pool of cash and enter custom swap agreements to produce the desired returns. This means that when authorized participants create or redeem new shares of UltraShort S&P500 ProShares
(SDS) for example, they merely exchange the shares for a set amount of cash as opposed to a basket of securities...."
http://news.morningstar.com/articlen...aspx?id=284287
Lady