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ETFs can mean extra taxes

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ETFs can mean extra taxes

If you’re investing in exchange-traded stock funds, you shouldn’t have too many shocks this tax season. But if you’ve got big gains from ETFs that invest in commodities, like corn, you could be shucking out some extra dollars to the tax man. Short-term gains on securities – gains realized in less than a year – are taxed at your ordinary income rate. Maximum rate this year: 39.6% for single filers with $406,751 or more in taxable income. For joint filers, the top rate starts at $457,601.635640136067447005-AP-Food-and-Farm-Seed-Farming

But long-term gains can be sweet – or at least, sweeter than paying taxes at your regular income tax rate.

•For most taxpayers, the long-term capital gains rate is 15%.

•For single filers with $36,900 or less in taxable income, the tax on long-term gains is zero. For married couples filing jointly, the limit is $73,800.

•For those filing singly with more than $406,759 in taxable income, or those filing jointly with more than $457,600, the rate is 20%.

For exchange-traded funds, however, the long-term capital gains rate isn’t quite as simple. ETFs trade on the stock exchanges, just as stocks do. Unlike conventional funds, which are priced only once a day, ETFs are priced all throughout the trading day. If you invest in an ETF that invests in stocks, you’ll get long-term capital gains rates if you satisfy the one-year holding period. But here’s the catch: Taxes on your ETF gains depend entirely on what the ETF buys and sells.

For example, if you invest in an ETF that buys and sells physical gold, such as SPDR Gold Shares (ticker: GLD), you’ll pay capital gains taxes at the same rate that gold bars are taxed at. And, unfortunately, the government considers gold to be a collectible, just like vintage baseball cards or Barbie dolls. The maximum capital gains rate for collectibles: 28%. You may also have invested in an ETF that invests in other types of commodities. You can buy the Teucrium Corn Fund (CORN) or the United States Oil Fund (USO). These funds don’t have corn silos or oil tanks. They buy futures contracts.