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ETFs at tax time

I often recommend ETFs as being a low cost alternative to stock index mutual funds. Low expenses, and a liquid market (for popular ETFs) that trades during the day, not just the day’s closing price are among the features that EFTs offer.

Given the recent pullback in the price of many commodities, there’s interest in the best way to invest in them. Over the past few months, CNBC aired a commercial promoting the purchase of gold coins, 1/10 oz. ones, given their advertised price, $115 per. Separate from my views on gold as an investment, I’d suggest that buying something at $115 which is only worth about $90 they day you get it, is not my idea of investing.

Back to ETFs. Investments in commodities (and Therefore ETF which invest in them) are not taxed as are stocks. Stock gains are long term if held over a year. The gain from a commodity sale is treated as though 60% of the gain is long term and 40% short term. Simple, I suppose, but something you must know if you are trading USO (an oil ETF).

Yet a different twist if you trade GLD (the SPDR gold ETF) or SLV (the iShare silver ETF). The IRS treats these as collectibles, and offers to take a 28% cut for long term gains, not the 15% you’d expect. Again, the math is simple, as long as you know.

Joe

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