Schedule K-1 (Form 1065)

Why Do you Get them?

Over 40 million taxpayers a year get K-1 forms, but they can be confusing if you aren’t accustomed to them. There are many potential reasons you may receive a K-1 form, but here we will focus on why clients of Tines Capital may receive them if they participate in our leveraged portfolio.

For some types of ETFs (Exchange Traded Funds) the company that runs the ETF is required to send out K-1 (Form 1065) to each individual that traded the fund through the year. This must happen regardless of whether or not the fund was purchased in or outside of a retirement account. If you participate in the Tines Capital Leveraged Algorithms (our most aggressive algorithms) you will likely receive one or more K-1 form.

What’s the Tax?

In the context of Tines Capital’s algorithms, generally these forms result in no taxes when the fund was held in retirement accounts and improved tax rates when held in taxable accounts.

• Retirement Accounts: To date, we know of no client that has had a K-1 form generate taxes within an IRA. This is generally because if box 1 shows no income over $1,000 and box 20 doesn’t have code V then that particular K-1 does not show enough unrelated business taxable income (UBTI) to require filing a 990-T and tax within the IRA. Regardless, it is a good idea to still give these forms along with all others to your accountants when preparing your taxes. There is a section of each K-1 form that says what type of account it was associated with. Generally for Tines Capital clients if the K-1 shows IRA/SEP/Keogh then it will have no tax affect.
• Taxable Accounts: Though these forms can be a hassle they can come with big benefits in certain cases. As Schwab states, “Another noteworthy tax feature of ETFs that hold commodity futures contracts is the 60/40 rule. This rule, from IRS Publication 550, states that any gains or losses realized by selling these types of investments are treated as 60% long-term gains (up to 23.8% tax rate) and 40% short-term gains (up to 40.8% tax rate). This happens regardless of how long the investor has held the ETF.” This is a good thing because long-term gains are typically better than short-term gains.

When Are they Ready?

Tines Capital has no control over when these forms are ready. They are produced by the exchange traded fund companies that we trade. Virtually all of these exchange traded companies have these forms ready between the 1st and 31st of March each year.

Where to get the Form?

By default these forms will be mailed to your address that is on record with Interactive Brokers or the relevant custodian. This is one of many reasons it is important to keep your mailing address updated at Interactive Brokers. Remember Tines Capital cannot update your address for you, but we are happy to assist you in the process if you want help.

Can you Get them Online?

You can get these forms online, but the process can be a bit confusing. For most people it is not worth the hassle and it is best to either collect the forms that are mailed to you or give Tines Capital permission to access the forms online and compile them for you. However, if you want to gain online access on your own you can follow the directions below or schedule a time for a personal walk-through.

It is possible that you could have a form at each of the below locations for each social security number and account type. For example, a couple with a joint taxable account, an IRA for spouse 1, and an IRA for spouse 2 may have three separate K-1 forms for a single ETF. If you have Traditional and Roth accounts this can increase the number of forms. In regards to Tines Capital’s activity, generally only the forms associated with taxable account will have an affect on your taxes, but it is still good practice to deliver all forms to your accountant.

In most years, clients that participate in the Leveraged Algorithms will receive K-1 forms from only a few of the potential ETF candidates below. The links below can be used to access the forms, but you will have to verify your identity for each ETF – once for each client. One of the most reliable ways to verify your identity when asked is to use your social security number and the brokerage statements from Interactive Brokers to verify a few of the purchases and sales that took place in your accounts. Once again Tines Capital is happy to walk you through the process or do it for you.

1. SVIX ETF: https://www.taxpackagesupport.com/volatility_svix
2. SVXY ETF: https://www.taxpackagesupport.com/svxy
3. UUP ETF: https://www.taxpackagesupport.com/uup
4. UDN ETF: https://www.taxpackagesupport.com/udn
5. UVIX ETF: https://www.taxpackagesupport.com/volatility_uvix
6. VIXY ETF: https://www.taxpackagesupport.com/vixy
7. DBC ETF: https://www.taxpackagesupport.com/dbc

Do you Want to REad More About Tax Forms?

The below links will take you off the website to several sources, some of which were used to compile this overview.

1. IRS Form
2. IRS Instructions
3. NDTCO
4. IRA Financial Group
5. Thomas Reuters
6. Investopedia
7. Schwab
8. Unrelated business taxable income (Fidelity)