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Summary

  • 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:

  1. K-1 forms are usually the last forms to be sent out. This could delay your tax filing.
  2. If you are holding shares in a tax exempt IRA, usually, you will not be required to report this income on your tax return.
  3. You may receive a K-1 form even if you have not yet sold your shares.
  4. Always contact a tax professional for year-end advice regarding a K-1 form.

While researching this question I found some great informational links:

Charles Schwab

ProShares

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

Ticker

Optionable

Link to latest financial statement

PowerShares DB Commodity Index Tracking Fund

(NYSEARCA:DBC)

Yes

Here

PowerShares DB Agriculture Fund

(NYSEARCA:DBA)

Yes

Here

iShares S&P GSCI Commodity-Indexed Trust Fund

(NYSEARCA:GSG)

Yes

Here

PowerShares DB USD Index Bullish

(NYSEARCA:UUP)

Yes

Here

United States Natural Gas Fund LP

(NYSEARCA:UNG)

Yes

Here

United States Commodity Index Fund

(NYSEARCA:USCI)

No

Here

United States Oil Fund

(NYSEARCA:USO)

Yes

Here

ProShares Ultra Silver

(NYSEARCA:AGQ)

Yes

Here

ProShares UltraShort Euro

(NYSEARCA:EUO)

Yes

Here

PowerShares DB Energy Fund

(NYSEARCA:DBE)

Yes

Here

PowerShares UltraShort DJ-UBS Crude Oil

(NYSEARCA:SCO)

Yes

Here

PowerShares UltraShort Yen

(NYSEARCA:YCS)

Yes

Here

GreenHaven Continuous Commodity Index Fund

(NYSEARCA:GCC)

Yes

Here

PowerShares DB Oil Fund

(NYSEARCA:DBO)

Yes

Here

PowerShares Ultra VIX Short-Term Futures ETF

(NYSEARCA:UVXY)

Yes

Here

PowerShares DB Base Metals Fund

(NYSEARCA:DBB)

Yes

Here

PowerShares Short VIX Short-Term Futures ETF

(NYSEARCA:SVXY)

Yes

Here

PowerShares DB Precious Metals Fund

(NYSEARCA:DBP)

Yes

Here

PowerShares DB G10 Currency Harvest

(NYSEARCA:DBV)

Yes

Here

PowerShares DB Gold Fund

(NYSEARCA:DGL)

Yes

Here

ProShares Ultra Gold

(NYSEARCA:UGL)

Yes

Here

ProShares VIX Short-Term Futures ETF

(NYSEARCA:VIXY)

Yes

Here

ProShares Ultra DJ-UBS Crude Oil

(NYSEARCA:UCO)

Yes

Here

ProShares UltraShort Gold

(NYSEARCA:GLL)

Yes

Here

Teucrium Corn Fund

(NYSEARCA:CORN)

Yes

Here

United States 12 Month Oil

(NYSEARCA:USL)

Yes

Here

ProShares UltraShort Silver

(NYSEARCA:ZSL)

Yes

Here

ProShares UltraShort DJ-UBS Natural Gas

(NYSEARCA:KOLD)

Yes

Here

PowerShares DB USD Index Bearish

(NYSEARCA:UDN)

Yes

Here

United States Brent Oil Fund

(NYSEARCA:BNO)

Yes

Here

ProShares VIX Mid-Term Futures ETF

(NYSEARCA:VIXM)

Yes

Here

United States Gasoline Fund LP

(NYSEARCA:UGA)

Yes

Here

PowerShares DB Silver Fund

(NYSEARCA:DBS)

Yes

Here

ProShares UltraShort Australian Dollar

(NYSEARCA:CROC)

Yes

Here

ProShares Ultra DJ-UBS Natural Gas

(NYSEARCA:BOIL)

Yes

Here

United States 12 Month Natural Gas Fund

(NYSEARCA:UNL)

Yes

Here

ProShares Short Euro

(NYSEARCA:EUFX)

Yes

Here

Teucrium Wheat Fund

(NYSEARCA:WEAT)

Yes

Here

United States Short Oil Fund

(NYSEARCA:DNO)

Yes

Here

Teucrium Soybean Fund

(NYSEARCA:SOYB)

Yes

Here

United States Copper Index Fund

(NYSEARCA:CPER)

No

Here

Direxion Daily Gold Bull 3x Shares

(GLDL)

No

Here

Direxion Daily Gold Bear 3x Shares

(GLDS)

No

Here

ProShares Ultra Australian Dollar

(NYSEARCA:GDAY)

No

Here

United States Diesel Heating Oil Fund

(NYSEARCA:UHN)

No

Here

ProShares Ultra DJ-UBS Commodity

(NYSEARCA:UCD)

No

Here

ProShares Ultra Short DJ-UBS Commodity

(NYSEARCA:CMD)

No

Here

Teucrium Sugar Fund

(NYSEARCA:CANE)

No

Here

United States Agriculture Index Fund

(NYSEARCA:USAG)

No

Here

ProShares Ultra Euro

(NYSEARCA:ULE)

Yes

Here

United States Metals Index Fund

(NYSEARCA:USMI)

No

Here

Teucrium WTI Crude Oil Fund

(NYSEARCA:CRUD)

No

Here

Teucrium Agricultural Fund

(NYSEARCA:TAGS)

No

Here

ProShares Ultra Yen

(NYSEARCA:YCL)

Yes

Here

Teucrium Natural Gas Fund

(NYSEARCA:NAGS)

No

Here

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.

Source: The Implications Of A K-1 Tax Form When Trading ETPs