ETF Taxes

I’m wanting to buy an ETF tracking the Finance sector (such as UYG), and another tracking a commodity (such as USO). But I’ve been hearing rumors that the taxes on these investments are ridiculous. I’m wanting to hold onto these picks for years, yet, I was told if I do, I’ll get my butt kicked in both taxes and fees. Can someone explain to me the taxes I will incur if I invest in something such as UYG and USO?

ETF’s are suppose to be vehicles where taxes are incurred when sold. The inkind redemption allows capital gains taxes to be avoided unlike mutual funds. Fees are variable among companies. Yahoo Finance should give you a rundown of the management fees. http://finance.yahoo.com/q/pr?s=UYG UGY has a 0.95% management fee.

You will not incur any capital gains taxes until the security is sold. Dividends you receive will be taxed in that year. Does that help?

Sounds to me like you’re thinking of mutual funds with the big taxes problems. MFs surprise you with a bunch of capital gains distributions to their shareholders at somewhat unpredictable times/quantities. If an ETF spits out a lot of dividends, those can be taxed. Other than that, ETFs are taxed when sold, at capital gains rates (which are presently more favorable than most ordinary income rates).

I wouldn’t use the word “ridiculous” to describe the tax efficiency of EFT. They are treated like a dividend paying stock, tax consequenc resulted from sale of the security, when dividend is received; or special dividend is declared.

not to thread jack but this is the first year I get to deal w/ investment related taxes and have a quick question… I hold multiple CEF’s that pay distributions that are made up of various sources including ROC, Cap Gains, and Dividends, etc. The funds publish EOY reports breaking down what % of the total came from what… my question is do I need to go through and create some sort of spreadsheet figuring this all out fund-by-fund or should I be receiving some sort of consolidated statement/form from my broker. I’m also concerned that some of the muni holding that are CEF’s may not be properly classified as tax exempt. Also- as far as the management fee’s go do I get to deduct those anywhere or it that already done out of the taxable distributions? I also get to deduct commissions- correct?? Has anyone gone through this? Is there a simple way or will I need to consolidate the individual information myself?? Sorry for the sophomoric ?'s but I’ve never been invested before this year outside of 401k.

akanska Wrote: ------------------------------------------------------- > not to thread jack but this is the first year I > get to deal w/ investment related taxes and have a > quick question… > > I hold multiple CEF’s that pay distributions that > are made up of various sources including ROC, Cap > Gains, and Dividends, etc. The funds publish EOY > reports breaking down what % of the total came > from what… my question is do I need to go > through and create some sort of spreadsheet > figuring this all out fund-by-fund or should I be > receiving some sort of consolidated statement/form > from my broker. I’m also concerned that some of > the muni holding that are CEF’s may not be > properly classified as tax exempt. You should get a 1099 from the institution by February with all of this necessary information. If some CEF’s are not classified properly, you should create your own records before you file your tax return. > Also- as far as the management fee’s go do I get > to deduct those anywhere or it that already done > out of the taxable distributions? I also get to > deduct commissions- correct?? You may deduct professional advice from a broker/adviser that you paid for. Commissions and fees may not be deducted as far as I know. > Has anyone gone through this? Is there a simple > way or will I need to consolidate the individual > information myself?? Sorry for the sophomoric > ?'s but I’ve never been invested before this year > outside of 401k.

thanks ditchdigger2CFA! “You should get a 1099 from the institution by February with all of this necessary information” means the fund administrator right? So I will get multiple as opposed to one from my BD?

Well, if you have funds directly custodied at the fund, then I think you would get one from each. If you own the funds through the B/D, then you will only get one 1099. Disclosure, I’m not too familiar CEFs.

The ultra/ultrashort ETFs can have some funky tax consequences, as their structure will generated cap gains distributions. Caveat Emptor. http://www.proshares.com/resources/news/36601289.html

Yep, they are leveraged, so the swaps used to get exposure will through off tax consequences.