Frequent Trading of ETF/ETN Over Futures? Tax Difference

Does anybody day trade ETFs and ETNs over Futures? I have read there are major tax differences, but can't find any good info.

 

With futures, you get a one page Alternate 1099 that summarizes your profit/loss for tax filing and you report it on one line on Schedule D. That's it.

With ETF/ETN you will have a detailed 1099 with multiple pages. Also, you will have multiple pages of the Form 8949 in your tax filing.

 

Most futures are taxed 60/40 and are section 1256 contracts. It's a big difference.

 

Lot's of tax breaks on trading Section 1256 contracts. http://greentradertax.com/trader-tax-center/tax-treatment/section-1256-contracts/

Lower 60/40 tax rates at all tax brackets. On the 10% and 15% ordinary rate brackets the LT capital gains rate is zero.

Don't forget the Section 1256 loss carry back election to offset Section 1256 gains only in the prior 3 years.

 

Also don't forget that some ETPs have pretty complicated K-1 reporting, mostly commodity products but some potentially surprises as well like the VIX and some ultra bond products.

 

Robert, do you have an opinion on the tax treatment (Section 1256) of the ETNs VXX and XIV ?

Thanks.

 

They are not 1256 contracts.

1245

 

I just published a blog post on our Website GreenTraderTax: Tax Treatment For Volatility Financial Products. Take a look and post comments and questions, thanks.

 

Thanks for your blog. But very sad that the folks at the IRS can't find the time to determine the tax status of instruments trading 100 million shares a day.