Taking neutral positions with ES/SPY to improve tax treatment? First year paying taxes on profit.

Discussion in 'Taxes and Accounting' started by CyJackX, Feb 20, 2021.

  1. CyJackX

    CyJackX

    Well, it finally happened, I had a year in the black that brought me closer to lifetime neutral XD (minus crypto). So nothing to be proud of, but better than being down. Here's hoping it lasts another year.

    Anyways, I've got several k in taxes due now. Was just wondering about the future, though; do people ever take neutral positions with ES/SPY in order to get better tax treatment since ES is taxed more favorably? Ex: Going long 1 ES and short 500 SPY is approximately neutral minus some details, but in a short period of time hypothetically couldn't you try to "transform" your short-term gains into 60/40 treatment?
    i.e. say you have 20k in profit.
    You take a position short 500SPY and long 1 ES until the SPY position is -20k and the ES is +20k. Would all your gains be subject to 60/40 now?


    I've read that the 60/40 treatment applies to losses as well, but I'm unclear on how that figures in. If it went the other way and all of a sudden I have 40k in short-term profit and 20k loss on the futures, does that mean they do not cancel each other out, and that I cannot write off the 20k in 60/40 treatment against the 40k short-term, and would effectively have increased my taxes? That seems to me to be the obvious answer, but just wanting to check.
     
    destriero likes this.
  2. Yes. In the short term, gains on ES (mixed) are taxed less than SPY (all short term) and similarly losses on ES (mixed) are worth less than SPY (all short term). Consequently, a hedged trade in ES vs SPY is a complicated way to guess the direction of the overall market. If you could do that, just buy or short a boatload without fooling with hedges.
     
  3. CyJackX

    CyJackX

    Very fair. MIght as well just make extra profit instead of worrying about tax treatment, I suppose.