- A relatively small portion of ETPs issue a K-1 tax form.
- K-1 forms are often misunderstood.
- Checking the previous and current financial performance of the fund can help you plan for your year-end tax liability.
A Seeking Alpha user recently contacted me about a question regarding the K-1 tax forms on ETPs.
Let's begin with the obvious question. What is a K-1 tax form?
A K-1 tax form shifts the liability for income taxes from the ETP entity to those who own/have owned shares. You are essentially a limited partner in the ETP. This makes you responsible for a portion of the capital gains or losses accrued by the ETP.
Relatively, few ETPs issue a K-1 tax form.
Things you need to know and tips for K-1 forms:
- K-1 forms are usually the last forms to be sent out. This could delay your tax filing.
- If you are holding shares in a tax exempt IRA, usually, you will not be required to report this income on your tax return.
- You may receive a K-1 form even if you have not yet sold your shares.
- Always contact a tax professional for year-end advice regarding a K-1 form.
While researching this question I found some great informational links:
Generally, we fear what we do not know. I can tell you that the concept of the K-1 form took me several days to grasp. Here is my equitable advice for you:
1. You can use options instead of directly purchasing shares in the ETP. This will bypass the K-1 form at the end of the year because you never directly held shares in the ETP. Options of low volume ETFs are usually not priced well. The bid/ask spread tends to be very wide. Please keep that in mind before jumping into options trading. To research more about options trading, use this resource.
2. Read through the prospectus and monitor the monthly gains/losses. You may sell an ETP for a loss, but log a capital gain because of the fund's monthly performance. Some ETPs calculate your portion of taxes on a pro-rated monthly basis instead of your actual ownership time.
3. If you don't understand the implications of a K-1 tax form, read the above links, below prospectuses, talk to a tax professional, or choose an alternative investment vehicle.
I have compiled a list of the ETPs that currently issue a K-1 tax form. I have researched whether the ETP is optionable or not. Included is a link to each funds' latest financial profit/loss statement (note that some funds are up to two months behind). The financial statement is a good indication of whether your K-1 will include a profit or loss amount for that time period.
Name of fund
Link to latest financial statement
PowerShares DB Commodity Index Tracking Fund
PowerShares DB Agriculture Fund
iShares S&P GSCI Commodity-Indexed Trust Fund
PowerShares DB USD Index Bullish
United States Natural Gas Fund LP
United States Commodity Index Fund
United States Oil Fund
ProShares Ultra Silver
ProShares UltraShort Euro
PowerShares DB Energy Fund
PowerShares UltraShort DJ-UBS Crude Oil
PowerShares UltraShort Yen
GreenHaven Continuous Commodity Index Fund
PowerShares DB Oil Fund
PowerShares Ultra VIX Short-Term Futures ETF
PowerShares DB Base Metals Fund
PowerShares Short VIX Short-Term Futures ETF
PowerShares DB Precious Metals Fund
PowerShares DB G10 Currency Harvest
PowerShares DB Gold Fund
ProShares Ultra Gold
ProShares VIX Short-Term Futures ETF
ProShares Ultra DJ-UBS Crude Oil
ProShares UltraShort Gold
Teucrium Corn Fund
United States 12 Month Oil
ProShares UltraShort Silver
ProShares UltraShort DJ-UBS Natural Gas
PowerShares DB USD Index Bearish
United States Brent Oil Fund
ProShares VIX Mid-Term Futures ETF
United States Gasoline Fund LP
PowerShares DB Silver Fund
ProShares UltraShort Australian Dollar
ProShares Ultra DJ-UBS Natural Gas
United States 12 Month Natural Gas Fund
ProShares Short Euro
Teucrium Wheat Fund
United States Short Oil Fund
Teucrium Soybean Fund
United States Copper Index Fund
Direxion Daily Gold Bull 3x Shares
Direxion Daily Gold Bear 3x Shares
ProShares Ultra Australian Dollar
United States Diesel Heating Oil Fund
ProShares Ultra DJ-UBS Commodity
ProShares Ultra Short DJ-UBS Commodity
Teucrium Sugar Fund
United States Agriculture Index Fund
ProShares Ultra Euro
United States Metals Index Fund
Teucrium WTI Crude Oil Fund
Teucrium Agricultural Fund
ProShares Ultra Yen
Teucrium Natural Gas Fund
Lastly, what are the actual implications of the K-1 form? At the end of the year, you will receive a 1099B from your brokerage and a K-1 form for your investment in any of the above ETPs. It will be out late (typically February-April). Per Turbo Tax, you will only need to report the amount listed on the K-1 form. You can cancel out the profit/loss listed on the 1099B.
K-1 forms should not keep you from investing in a fund, assuming you believe it is a good investment. It is just a different kind of tax reporting at the end of the year. Nothing to be afraid of, just something to be educated about.
Final note: I am not a tax professional. All information contained in this article is informational and based on my own research. I recommend you contact a tax professional for help regarding your end of the year K-1 tax form.