Are Gold and Silver Coins Taxable?
Gold bullion tends to be less costly than coins. Yet investors often prefer coins over bars because their more recognizable packaging reduces counterfeit risk.
Understanding how the IRS treats transactions involving precious metals is of vital importance when buying and selling them, so this article focuses on whether gold and silver coins are tax deductible as well as reporting requirements that accompany sales of this sort.
Capital Gains Tax
Investing in precious metals can be an excellent way to diversify your portfolio, yet as with any investment it comes with a certain degree of taxation that must be handled carefully. This guide covers different ways that physical gold and silver coins can be purchased as investments as well as federal tax laws, cost basis calculations and other important details regarding this form of investing.
The Internal Revenue Service treats physical gold investments the same way it treats any other investment asset, which means you’re responsible for paying capital gains taxes on any profits you make from their purchase. Capital gains tax liability is calculated by subtracting your sale price from your original purchase price – known as cost basis – before deducting sales proceeds. Silver purchases held over one year may qualify as long-term capital gains and qualify for reduced ordinary income tax rates – potentially saving a considerable sum in taxes.
State Sales Tax
Buyers of precious metals may face state sales taxes as well, which vary considerably by state.
Many investors and collectors choose rare coins with numismatic value or gold and silver bullion that is sold purely for its metallic content as investments. Fabricated precious metals do not qualify for this exemption.
State and local taxes may also increase the overall price of purchases, so be sure to research local laws prior to making purchases. Keep in mind that while states set an overall sales tax rate, localities may add extra points.
Most states do not charge sales tax on bullion investments due to its savings-friendly characteristics compared to traditional paper assets, thus helping break down the Fed’s monopoly on money. 2022 could mark an important moment in sound money history as several bills are currently underway in various states to rollback these discriminatory taxes on precious metals.
Dealer Reporting Requirements
The IRS mandates that dealers of precious metals submit reports to them regarding sales. This policy serves to monitor large commodity exchanges that take place within the US as well as prevent any money laundering schemes which might damage our economy.
Customers purchasing bullion products that meet specific reporting quantities must submit 1099-B forms to the IRS, similar to other tax forms they often receive.
Example: If a customer purchases multiple purchases within 24 hours using cash, money orders or bank drafts, these must be aggregated and recorded as one sale transaction. Furthermore, dealers must report any series of transactions where total ingot sold exceed the minimum delivery size specified by IRS reportable items (i.e. minimum ounce requirement against commodity contracts).
Unfortunately, dishonest coin dealers and customers attempt to skirt these rules by spreading purchases across multiple days in order to evade reporting requirements. Such illegal structuring of transactions is an offense against US law, and can result in prosecution from both the IRS and local law enforcement authorities.
IRS Reporting Requirements
Not only are state sales taxes applicable when purchasing or selling precious metals, but there are also federal requirements pertaining to their purchase and sale that must be fulfilled as well. These laws allow the IRS to keep an eye on large commodity exchanges across the US, while also combatting money laundering schemes. Typically, dealer purchases of silver made with cash or instruments such as money orders, bank drafts or traveler’s checks trigger an IRS Form 1099-B from their dealer and therefore should be issued.
Customers selling bulk gold bullion coins directly to dealers may require their vendors to issue them with a Form 1099-B. This could apply if the purchaser sells over 25 one ounce Krugerrands, Maple Leaves or Mexican Onzas within any calendar year (based on futures contract specifications), as well as 90 silver U.S. coins of $1,000 face value or greater (according to futures contract specifications). Buyers should consult their CPA or tax professional regarding details specific to their own situations.