QYLD Taxes: What You May be Missing - YouTube

now on this channel we've talked a lot about qyld  but today's video as per the title says what you  

might be missing with qyld and we're going to go  behind the curtain and explain exactly how qyld  

pays people every single month in its forms  of distributions per share that you own we're  

also going to talk about tax and what people  might be missing when it comes down to how  

qyld pays people how they actually make their  money and how you and i the shareholders get  

stuck with the tax bill how does this all work  that and more discussed in today's video so if you  

want to get started don't be dumb tap the thumb  and let's get right to it so in full transparency  

i own about i don't know like 450 shares of qyld  or something like that let's talk about the three  

types of distributions that qyld offers as well  as where to find this information at now here's  

qyld's website and the goal of this particular  etf is a high income potential based on covered  

call writing option strategy they distribute  dividends or distributions every single month for  

the last seven years so if you think about this  right from their website that's kind of a brand  

promise you invest in this etf here's what you  can look forward to now if you're not familiar  

with the covered call writing strategy and  exactly that particular working of the qyld  

etf i recommend you check out my first video  on qyld i'll link it down in the description  

check that one out first and then you can  come back to this one to learn a little bit  

more about what's behind the curtain so let's talk  first about the three types of distributions now  

what they do they do these covered call writing  options strategies they make money by doing  

that and then they pass that money on to you in  the form of a distribution but because it's not  

like a typical company paying out dividends  out of their profit what they're doing is  

this option strategy which is taxed a little bit  differently it is taxed at a 60 long term which is  

otherwise known as a qualified distribution and 40  short-term otherwise known as an ordinary dividend  

now right here on the irs website i'll link all  of these things that i'm talking about also in the  

description if you want to check it out yourself  but look at this form 1099 div that is what your  

brokerage will send you at the end of every year  that you can file with your tax person it says  

it right here dividends are the most common type  of distribution from a corporation they're paid  

out of the earnings and the profits and dividends  can be classified either as ordinary or qualified  

ordinary dividends are taxable as ordinary income  qualified dividends that meet certain requirements  

are taxed at a lower capital gain rate that  means that 60 of that based on the premiums is  

kind of a discount on tax i guess you could say so  that's all great qualified dividend but what is an  

ordinary dividend what's that other 40 that you're  paying well that means your ordinary tax rate so  

it's basically how much money you're making from  your job and every other income source now i'm  

going to go right here on nerdwallet.com a lot of  people think let's say your job pays you 100 000  

a year and then people think oh i make 100 000  so i have to pay 24 in tax that's not entirely  

accurate tax works as a waterfall system look  at this 10 percent up to nine thousand eight  

hundred and seventy five dollars so your first  98.75 that you earn is only taxed at 10 percent  

then the next amount of money up to 40 125  is taxed at 12 and then up to 85 000 22 and  

so on and so forth so hopefully that actually  helps clarify a little bit of how taxes work  

in the united states if it is tap the like button  show me some love but wait a minute qyld doesn't  

pay out in ordinary dividends every year no no no  it's actually damn near zero that's what you might  

be missing with qyld especially recently there's  a third type of distribution and it's the one  

they've been paying out the most and it's called  a capital dividend otherwise known as return of  

capital so return of capital in the case of qild  means all the money that they're making from their  

investments people like you and i investing into  the etf they're paying that back to the investors  

in the form of a distribution why because remember  the brand promise they paid monthly dividends for  

the last seven years high income potential they  want to stick to that 19 to 22 cents per share per  

month in order to do that they got to pay somehow  so they're going to take the money and basically  

give it back to you in the form of a dividend but  why well it's because right now in 2021 we're an  

extremely bullish market it's going up up up to  the moon and when that happens it's very difficult  

to make premiums to make money on covered call  options writing strategies now a couple years ago  

that might have been a different  case but with 2021 being so crazy  

it's mainly return of capital in fact i think  it's primarily and i'll show you exactly  

how you can find that out month by month on  your own but let's talk really quick about  

uncle sam and tax bills here's the beauty  of return of capital you actually don't pay  

taxes on return of capital remember it's your own  money kind of coming back to you in the form of a  

distribution and that's kind of cool what it  does do in the case that let's say you get a  

hundred dollars of dividends you earn that many  shares that 19 cents times whatever equals 100  

and instead of reinvesting that dividend back  into qyld you take this 100 and you use that for  

whatever you want to do for the next month what  will happen is your average cost per share of qyld  

will actually start coming down because remember  they're returning your money to you so how that  

actually works is your money starts actually going  down now you can find your average cost per share  

in your favorite brokerage app whichever one that  you use they all make it fairly easy to find out  

what that average cost per share is but let me  give you a quick little example so let's say  

for example you buy 22 and 50 cents per share of  qyld it doesn't matter how many shares you bought  

for this example i'm going to try to make this as  easy as i can so 2250 is your average cost well  

time ticks on months go by years go by whatever  you're just taking all the money and running with  

it in these distributions that are all return  of capital well now your average price per share  

over that period of time is now let's say down to  21.50 per share pretty darn interesting in it so  

you didn't have to pay taxes on all that  money that's being returned to you granted  

you still have the same amount of shares let's say  you bought 100 shares at 22.50 you still own 100  

shares it's just because of the return of capital  your average cost is down but when you go to sell  

your 100 shares you got to be careful let's say  the year is now 2023 and you decide i'm done with  

this i'm gonna sell my 100 shares of qild and be  done with it well guess what let's say the price  

is going for 23 dollars a share in 2023 well  because your average share price is only 21.50  

there's a difference here which means that you're  going to be paying capital gains tax on the money  

that you made so this return of capital can be  considered tax deferred as long as you don't  

sell you technically don't have to pay any taxes  but that brings a very interesting question that  

you might have and that is well wait a minute if  i just decide i'm gonna tax the furthest for life  

and i'm just gonna hold on for dear life  forever and considering you don't buy any more  

and that you don't reinvest the dividends years  and years and years go by and let's say your  

average price drops to zero dollars a share can  that actually happen technically yes it could  

in the grand scheme of a long period of time  and many many distributions of return of capital  

if you hit zero dollars per share a couple  things happen one of course if you sell then  

you're really gonna get hit with a an extremely  large tax bill depending on what the current price  

per share of qyld is but once you hit zero dollars  per share any distribution from that point forward  

for the rest of your life as long as you hold  on to qyld would then actually be taxed at your  

ordinary tax rate so if you get to a point where  you're zero dollars a share well at that point  

then you're making money it sounds weird doesn't  it but that's just something to keep in mind i  

don't think too many people have held on that long  for zero dollars a share if you have i'd love to  

hear from you comment down below that'd be kind  of a cool thing to talk about typically you're  

gonna probably see around here 21.50 a share and  so on so it's kind of cool though to think that  

all those shares that you own you've paid zero  dollars per share for if you hold for that long  

oh i have 500 shares of qyld and i didn't pay  anything for it you know it's like what and then  

all of a sudden you sell them all for twenty three  dollars a share even twenty one dollars a share of  

heck even one dollar a share yeah you know that'd  be interesting but how do we find out what they're  

actually paying us okay i got 19 cents a share  last month the month before that was 22 cents per  

share what is that well here's how you can find  that out if you go to globalxetfs.com navigate  

over here to the qyld website here's how you find  that information out every single month i hope you  

guys really appreciate this scroll down best thing  i like to do is just scroll on down here to where  

it says supplemental tax information you click  on that and then you can see all the different  

etfs they own you click on qild right here it's  going to pop you right down to where you belong  

every single month they fill out and distribute a  form 19a so let's look at october 21 as an example  

i'm going to click on it it's going to open up  a new tab i'm going to zoom in a little bit so  

you can actually see what we're looking at and  this latest distribution of 19 cents per share  

was 100 return of capital remember what i said  we're in a bullish market it's hard to make money  

in the covered call options writing strategy so  what is qyld doing in order to maintain their  

acceptability of a monthly paying etf well they're  returning your money to you so that is technically  

19 cents per share add up how many shares you have  multiply it that's all return of capital and tax  

deferred as long as you don't sell qyld but it  wasn't always that case in fact let's go back  

here i'm actually going to look at the year end  statement in 2019 form 8937 i'm going to click on  

that we'll zoom in here a little bit and i'm going  to scroll down to where this actually makes sense  

right down here now check this out you have an  ex-dividend date all that kind of stuff how much  

they paid out 21 cents a share 18 cents a share  20 cents blah blah blah all the way down in 2019.  

look at the return of capital distribution  percentage only 14 here 14 3 cents 2 cents 3 cents  

if we look at january 2019 return of capital was  only 3 cents per share whereas their short-term  

dividend amount of the total of 21 cents was  actually 18 cents in short-term amount which means  

that would qualify then as the ordinary dividend  they made money on their options trading strategy  

and therefore they're passing it on to you that's  great that's how this fund is supposed to be  

structured you can see back here when the  market wasn't so crazy they could actually  

make some premiums on this and everything looks  fine now before i get to the big question that was  

asked in the prior video which is what about the  roth ira and things like that let's talk about a  

warning and that warning is to my people out there  that might be younger or they're just integrated  

let's say you say hey i want my portfolio to go to  the moon i want to see some major growth well if  

you're saying that and you're investing in qyld  you might want to have a think about that and  

here's why i say that the goal here is this is  what we like to call an income fund making you  

income every single month so if you're into that  you want to make a ton of money with dividends  

every single month you just throw all your money  into that and then you collect the money that gets  

brought back into you that's fine that's great  a lot of dividend investors love to do that  

but if that's not you and you want to see some  major growth you want to 10x your money you want  

to do all this kind of stuff you might want to  really think about this now the qild attracts the  

nasdaq 100 100 largest american companies that  trade on the stock market in the nasdaq okay  

so it's a really cool thing but there's a better  fund if you're looking for the nasdaq 100 etf that  

shows more growth you need to look into something  like qqq that one tracks nasdaq 100 and isn't  

focused on options trading strategies and monthly  distributions and all that kind of stuff sure you  

might get some money back in the form of dividends  but you're not going to get as much as you would  

with qyld but here's the big difference if we look  at portfolio visualizer and let's say we invested  

ten thousand dollars into each one of these etfs  qyld and qqq and we started from the beginning  

of each one of these funds one-time investment  and we'd reinvest any dividend or distribution  

they may give us if we look down here check out  the big difference here the red line represents  

qq whereas the blue line represents qyld your ten  thousand dollar investment in qqq has grown to  

forty three thousand seven hundred and nine  dollars representing a twenty point nine six  

percent return qyld ten thousand final balance  eighteen thousand seven sixty one representing  

only an eight point four six percent last but not  least the big question that everybody was asking  

what if i just drop qyld into a roth ira because  two things could happen one if they pay out  

ordinary dividends or qualified dividends or the  return of capital and i decided to sell it and all  

this other crap that we talked about on the video  who cares if it's in the roth ira wouldn't i have  

to not worry about that at all and technically  you're right so a roth ira and in fact if you're  

not in a roth ira already you need to consider one  as one of your first investment vehicles because  

here's how it works let's say you get a paycheck  from your job and they pay taxes for you out of  

your paycheck you're left with maybe an extra 100  that you can then invest well you put that 100  

into a roth ira because it's already been taxed  by your employer paycheck right so that hundred  

dollars goes into the roth ira and then as it  grows over time as the stock market grows as you  

get distributions as all kinds of stuff happens  oh you get all this extra money and guess what  

when you get to retirement age as you pull money  out to live all of this money in the roth ira  

is tax free that's pretty darn awesome so i  would recommend that and if you put a qyld  

type of etf in that math ira technically it's  not taxed because you've already paid taxes on  

it the roth ira shields it from the tax so if you  decide to sell it and buy into another investment  

or you're just taking the distributions and  running with it and they eventually become  

an ordinary or qualified dividend distribution  well then that's all fine it wouldn't be taxed  

once you hit retirement age of 59 and a half or  greater so did that help answer some of those  

questions did you learn something today if you  did comment down below and let me know i'd love  

to hear from you and make sure you check out this  video next on more about qqq and then here's the  

original qyld if you still haven't checked that  one out make sure you check this out to go into  

details about the options writing strategy and  until next time we'll see you on the next video