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When it comes to commodity investing, taxes can be something of a burden for investors. Trying to figure out which tax form you will need to complete and the specific tax rates can be a pain come April of every year. ETFs have helped to simplify a number of those issues, but there still is some misunderstanding when it comes the most popular commodity products — gold ETFs.
Gold ETFs and Tax Time
Without a doubt, gold ETFs are the most coveted in the commodity fund space. However, many investors forget exactly how each product is taxed and what is expected of them come tax season.
As a brief reminder, every ETF that invests in commodity futures will issue a K-1, while an ETN utilizes a 1099; the latter is considered to be much less hassle.
Physically-Backed ETFs
Let’s start with physical gold ETFs, easily the most popular of this precious metal. Because these funds offer physical exposure, they are taxed as collectibles. This means that they will forgo the standard long-term (LT) and short-term (ST) tax rates of 15% and 35%, respectively. Instead, LT capital gains are taxed at 28%, with short term remaining at the 35% rate. That can be a nasty surprise for anyone who is unaware, as it cuts off 13% of the gains you may have thought you were entitled to.
Below is a breakdown of the gold ETFs that utilize this structure:
| ETF | LT Tax Rate | ST Tax Rate | Tax Form |
|---|---|---|---|
| SPDR Gold Trust (GLD ) | 28% | 35% | 1099 |
| COMEX Gold Trust (IAU ) | 28% | 35% | 1099 |
| Physical Swiss Gold Shares (SGOL ) | 28% | 35% | 1099 |
| Physical Asian Gold Shares (AGOL ) | 28% | 35% | 1099 |
| Merk Gold Trust (OUNZ ) | 28% | 35% | 1099 |
Futures-Based ETFs
Futures-based gold ETFs are not quite as popular among investors, but they still carry some weight in the industry. Here, the ETF vs. ETN difference will be important when it comes to the tax form that is issued. Otherwise, futures-based products are not treated as collectibles and will therefore follow the standard 15%/35% structure.
See also our ETF Tax Tutorial: Complete List Of ETFs That Issue A K-1
Here is a list of some of the most popular futures-based gold ETFs:
| ETF | LT Tax Rate | ST Tax Rate | Tax Form |
|---|---|---|---|
| DB Gold Short ETN (DGZ ) | 15% | 35% | 1099 |
| DB Gold Double Short ETN (DZZ ) | 15% | 35% | 1099 |
| E-TRACS UBS Bloomberg CMCI Gold ETN (UBG ) | 15% | 35% | 1099 |
| DB Gold Double Long ETN (DGP ) | 15% | 35% | 1099 |
| Gold Trendpilot ETN (TBAR ) | 15% | 35% | 1099 |
| 3x Long Gold ETN (UGLD ) | 15% | 35% | 1099 |
| 3x Inverse Gold ETN (DGLD ) | 15% | 35% | 1099 |
| Gold Shares Covered Call ETN (GLDI ) | 15% | 35% | 1099 |
| Gartman Gold/Euro ETF (GEUR ) | 15% | 35% | 1099 |
| Gartman Gold/Yen ETF (GYEN ) | 15% | 35% | 1099 |
| Daily Gold Bear 3x Shares (BARS ) | 15% | 35% | K-1 |
| Daily Gold Bull 3x Shares (BAR ) | 15% | 35% | K-1 |
It should also be noted that certain funds structured as commodity pools also issue K-1s, though the short and long-term tax rates are typically blended ones. These funds include:
There are also a handful of unique gold products that blend varying strategies, none of which are taxed as collectibles but investors will want to pay attention to their structure to determine if they will receive a K-1 or a 1099 when the year is up.
The Bottom Line
It may be one of the most boring parts of investing, but knowing your tax ramifications is a big part of the process. When it comes to gold ETFs, especially physically-backed exposure, always be aware of how your gains will be taxed; getting hit with a 28% rate when you assumed 15% can be a major blow. This is a good lesson to learn when it comes to any investment you make, be it ETFs or not.
Follow me on Twitter @JaredCummans
Disclosure: No positions at time of writing.
