You may think of taxes as something you need to consider just once a year. By being mindful of how various exchanged traded funds (ETFs) are taxed now, however, you can save yourself some surprises next year.
When it comes to taxes, how it usually works with most equity ETFs is pretty straightforward: you pay no taxes on the ETF until it’s sold. If you own an ETF for more than a year, it gets the long-term gain treatment. If held for less than a year, the short-term treatment applies.
Start branching out beyond plain vanilla funds, though, and you’ll have a few more things to think about.
Commodity ETFs
Commodity ETFs are structured as partnerships or trusts, which means that investors who own such a fund at any time during the current tax year own an “undivided interest” in the assets it tracks (be it physical metals or futures contracts). What this means is that gains or losses in the fund are passed onto the investor – even if you didn’t receive any distribution or cash.
All of this is reported on the IRS’s K-1 form. You can read about how to handle a K-1 here.