TruDrew wrote: ↑Tue Jan 26, 2021 8:23 pm
Do you implement VXX instead of VIXY for tax purposes? Since VXX is an ETN and VIXY is an ETF that has to be reported on a k-1. I've had vxx in the past and schwab included it in the 1099 so I was able to use this to offset other short term capital gains. However, I'm not sure how offsetting capital losses with stocks works with VIXY or VIXM since they're reported on a k-1.
This is really tax advice and the standard caveat...I'm not a tax guy but I still do/file my own returns. I think it is a matter of preference on taxes but a matter of instrument structure between VXX and VIXY/M. With the latter two you actually "own" the stuff and the "stuff" is real. The former is a note debt note on a banks books. So there's that. Personally I don't sweat that issue with these funds, but someone might and there are substantive differences structurally that folks should be aware of before they commit their funds.
Now to taxes, what a K-1 really does is give you a tax oriented profit/loss report as one of the many "mini-partners" regarding your %age of the business. Handily, with most good ETF companies (and ProShares does a good job in my view) they give you good instructions and tell you where to enter the entries from the K-1 into the various tax forms (e.g. where the numbers should go). So if you can read, you can do your taxes if that's your thing. If not, you give it to your tax person and they do the work for you. If you are a do your taxes early person you will hate them as they generally don't get released until March.
Substantively you will find the vast majority of gains or losses will end up hitting Form 6781 as you "own" futures, which means your profits and losses will automatically be treated at 60% LTCG and 40% STCG. (IIRC) They will also be marked to market every year so if you don't buy or sell a single share you're still going to get a K-1 and be on the hook for the associated taxes (or deductions for a loss) from that year's "futures trading business." Given that, the way to pay for taxes is just sell enough shares to cover the taxes as that makes no real difference in terms of driving a tax bill.
What makes most sense tax wise of course is completely a personal thing...as to forms a very small side rant.
For ease I would much rather deal with a K-1 and a 6781 form than the monstrosity one has to go through when buying and selling stocks and accounting for dividends which to me is far more of a hassle.
Short version: VXX you control taxes trading a "stock", VIXY/M is marked to market futures tax rules...this can be a good thing or bad. If you are trading VXX more than annually, VIXY/M are going to be far more tax efficient (maybe).
Hmmm...however, given decay in VXX you are probably going to book STCLs every year assuming you buy and sell which is likely to maintain your allocation. This right here would be a good research project I probably ought to do...may change how I think about them from a tax perspective...writing can be very helpful, it can spawn thoughts you haven't thought of.
Maybe Vinnie will chime in on this one.