ETF profits may result in higher taxes

Some ETF funds are taxed as an ordinary income-tax rates even if you hold it as a long-term investment. (more than 1 year and 1 day). Here is an interesting article:

By John Waggoner, USA TODAY (12/1/2009)

Investors in some exchange traded funds might be getting a little something extra this year: a bigger tax bill.

Profits from the vast majority of mutual funds get taxed at capital gains rates, just as profits from stocks and bonds. Long-term capital gains are taxed at a maximum 15%.

But long-term profits from funds that invest in gold or silver bullion are taxed at the same rate as gains from gold bars and other collectibles: 28%.

Stocks, mutual funds and collectibles must be held for a year or more to qualify for long-term rates. Otherwise, they're taxed as income at the same rate as wages – a maximum 35%.

The logic: Fund profits get taxed at the same rate as the underlying investment.

Just as gains from stock funds are treated the same as profits from the stocks themselves, profits from exotic ETFs are taxed the same as their investments.

Other tax surprises from ETFs: Click this link for more details