This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Tax Season ETF Guide

NEW YORK ( TheStreet) -- One of the highlights of ETFs that has helped gather popularity for the investment vehicle is their tax efficiency in comparison to mutual funds. Passive management, trading on the secondary market and in-kind redemption by authorized participants are three ways that ETFs can beat mutual funds.

However, that doesn't mean investors can buy ETFs without concern for taxes. There are different types of ETFs, with different tax implications, and investors should be informed before they invest.

This article will provide an overview of how taxes are typically decided for different classes of ETFs in order to give investors a better idea of what to expect. From physically backed commodity ETFs such as SPDR Gold Shares (GLD) and standard equity funds such as SPDR S&P 500 (SPY), to more complicated futures-based funds such as United States Natural Gas (UNG), this guide will give you the ETF-related tax information you need to make better informed investments.

First off, the plain vanilla ETFs that track a basket of equities, such as the popular PowerShares QQQ (QQQQ) or iShares MSCI Emerging Markets Index (EEM), are taxed the same way that gains are taxed for equities of individual companies. For example, the capital gains taxes on an investment in Bank of America (BAC - Get Report) will be the same as the capital gains taxes for an investment in Financial Select Sector SPDR (XLF), of which BAC is the largest holding.

This is true of ETFs that track baskets of companies traded on foreign stock exchanges as well.

When an equity ETF makes dividend distributions, these are also taxed in the same way as dividends from a single equity, and investors receive a 1099 form.

Not all ETFs track equities though, and providing easy access to commodities as investments has been a format that has made many such funds popular with investors.

In this fund category, investors should be aware that there are different tax treatments between ETFs that physically invest in a commodity and ETFs that invest in the futures of a commodity.

ETFs that invest in the futures of a commodity, such as United States Oil (USO), will have 60% of gains taxed at the long-term capital gains rate for an investor's income class and will have 40% of gains taxed at the short-term capital gains rate. This will be the case regardless of how long the ETF is held.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
USO $11.05 -2.21%
SLV $16.64 -2.00%
EEM $34.30 -0.28%
SPY $207.97 0.79%
GLD $123.24 -0.33%


Chart of I:DJI
DOW 17,891.16 +117.52 0.66%
S&P 500 2,081.43 +16.13 0.78%
NASDAQ 4,817.5940 +42.2360 0.88%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs