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 Brass 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 one of these K-1 forms 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.
- 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 if you wish. However, you need to remember that it is possible that you could have a form at each of the below locations. Depending on your investment account set up you may also have a different form for each social security number. For example, if a couple each had an IRA trading the leveraged portfolio they may receive a K-1 form for each spouse for each exchange traded fund. That being say most years clients that participate in the Leveraged Algorithms will receive K-1 forms from a few of the potential candidates below.
- SVXY ETF: https://www.taxpackagesupport.com/svxy
- UUP ETF: https://www.taxpackagesupport.com/uup
- UDN ETF: https://www.taxpackagesupport.com/udn
- SVIX ETF: https://www.taxpackagesupport.com/volatility_svix
- UVIX ETF: https://www.taxpackagesupport.com/volatility_uvix
- VIXY ETF: https://www.taxpackagesupport.com/vixy
- 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.
- IRS Form
- IRS Instructions
- IRA Financial Group
- Thomas Reuters
- Unrelated business taxable income (Fidelity)
Tines Capital, LLC (“TC”) is a registered investment advisor offering advisory services in the State of Oklahoma and in other jurisdictions where exempted.
This communication is for informational purposes only and is not intended as an endorsement of any company, security, fund, or other securities or non-securities offering. This communication should not be relied upon as the sole factor in an investment making decision.
Past performance is no indication of future results.
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