Taxes on USO stock

[enclaust]

I recently invested in USO (to be specific I bought in at $20.90 and got 95 shares). I invested without knowing the taxes that will be implemented on it, and now I am worried about how much in taxes I will have to pay.  I am aware I will receive a K-1 form at the end of the year, but from what I have read online I am scared about how much taxes I might have to pay. I've read online that some people ended up having to pay thousands in taxes even they did not make much in capital gains. Should I just sell my shares now? 

[Anonymous]

we are not investment advisors.  It is a publicly traded partnership so from a perspective the only way you could owe a lot of taxes is if it made a lot of money.   if it made a lot of money the price would rise so if you sold you would have money to pay the taxes. Or it could pay a nontaxable distribution for the money it earned.  so again you would have the money to pay any taxes (the price would go up for the profits and down for any distributions).  or a combination.    if it loses money such losses aren't deductible until the year you sell your position.    consider that over the last year the price was at one point over $100/sh and now at the end of May 2020 is about $25/sh 

what probably happened to others is they bought when the price was high and sold when the price was low.   so in such a situation they could have income (2019) on which they would owe taxes and a capital loss (2020) which for a year is limited to $3,000 and maybe some ordinary loss as well. 

[enclaust]

I see. If I sell now I will definitely have capital gains and therefore I will definitely get taxes. My biggest concern is having to pay more in taxes than what I actually gained. I am wondering if this is even possible. 

[TomYoung]

"If I sell now I will definitely have capital gains..."

I assume you're stating that because the current price of the stock is more than what you paid for it.  If you sold right now you may or may not have capital gains and you won't know that until you receive your Schedule K-1.  That's because the activity shown on your Schedule K-1 changes your basis from its original purchase price.  Very broadly, distributions of cash from the fund lower your basis (and are not income), losses attributed to your shares decrease your basis and income attributed to you increase your basis.  Because of this there is no "double taxing" of income.  So if the partnership happens to have income, taxed at ordinary rates, that lowers your capital gain, taxed at capital gains rates.

[Anonymous]

 losses would decrease not increase basis.  also realize that USO generates its income from trading futures contracts which are regulated futures contracts so the gain/loss from them is 60% long term capital gain/loss and 40% short term capital gain/loss.    there could be other types of income and expenses.  your basis goes up for net income and down for losses and distributions.  At the end of the day market value is determined by adjusting assets and liabilities to the end of the day fair market value  (this is the process followed bu all funds).

here's a brief synopsis of the fund  

Fund Strategy

The investment seeks the daily changes in percentage terms of its shares’ per share net asset value (“NAV”) to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes in the price of a specified short-term futures contract on light, sweet crude oil called the “Benchmark Oil Futures Contract,” less USO’s expenses. USO seeks to achieve its investment objective by investing primarily in futures contracts for light, sweet crude oil, other types of crude oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based fuels.

Additional Information

Risks of Commodity ETFs

Commodity-related products, including futures, carry a high level of risk and are not suitable for all investors. Commodity-related products may be extremely volatile, illiquid and can be significantly affected by underlying commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions, regardless of the length of time shares are held. Investments in commodity-related products may subject the fund to significantly greater volatility than investments in traditional securities and involve substantial risks, including risk of loss of a significant portion of their principal value.