K-1 Tax Forms For ETFs And ETNs (2024)

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A Seeking Alpha user recently contacted me about a question regarding the K-1 tax forms on ETPs.

Let's begin with the obvious question. What is a K-1 tax form?

A K-1 tax form shifts the liability for income taxes from the ETP entity to those who own/have owned shares. You are essentially a limited partner in the ETP. This makes you responsible for a portion of the capital gains or losses accrued by the ETP.

Relatively, few ETPs issue a K-1 tax form.

Things you need to know and tips for K-1 forms:

1. K-1 forms are usually the last forms to be sent out. This could delay your tax filing.
2. If you are holding shares in a tax exempt IRA, usually, you will not be required to report this income on your tax return.
3. You may receive a K-1 form even if you have not yet sold your shares.
4. Always contact a tax professional for year-end advice regarding a K-1 form.

While researching this question I found some great informational links:

Charles Schwab

ProShares

Generally, we fear what we do not know. I can tell you that the concept of the K-1 form took me several days to grasp. Here is my equitable advice for you:

1. You can use options instead of directly purchasing shares in the ETP. This will bypass the K-1 form at the end of the year because you never directly held shares in the ETP. Options of low volume ETFs are usually not priced well. The bid/ask spread tends to be very wide. Please keep that in mind before jumping into options trading. To research more about options trading, use this resource.

2. Read through the prospectus and monitor the monthly gains/losses. You may sell an ETP for a loss, but log a capital gain because of the fund's monthly performance. Some ETPs calculate your portion of taxes on a pro-rated monthly basis instead of your actual ownership time.

3. If you don't understand the implications of a K-1 tax form, read the above links, below prospectuses, talk to a tax professional, or choose an alternative investment vehicle.

I have compiled a list of the ETPs that currently issue a K-1 tax form. I have researched whether the ETP is optionable or not. Included is a link to each funds' latest financial profit/loss statement (note that some funds are up to two months behind). The financial statement is a good indication of whether your K-1 will include a profit or loss amount for that time period.

Lastly, what are the actual implications of the K-1 form? At the end of the year, you will receive a 1099B from your brokerage and a K-1 form for your investment in any of the above ETPs. It will be out late (typically February-April). Per Turbo Tax, you will only need to report the amount listed on the K-1 form. You can cancel out the profit/loss listed on the 1099B.

K-1 forms should not keep you from investing in a fund, assuming you believe it is a good investment. It is just a different kind of tax reporting at the end of the year. Nothing to be afraid of, just something to be educated about.

Final note: I am not a tax professional. All information contained in this article is informational and based on my own research. I recommend you contact a tax professional for help regarding your end of the year K-1 tax form.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Nathan Buehler