Can the IRS Take My Gold?
Many investors turn to precious metals like gold as an investment alternative that does not depend on stock market fluctuations, yet when selling their precious metals for profit they may be surprised to learn that the IRS requires them to pay capital gains taxes on any profits made from selling.
The Internal Revenue Service classifies physical precious metals like coins and bullion as collectibles rather than investments, meaning any profits from their sale are taxed at a maximum rate of 28%.
Collectibles
Collectibles are investments with an intrinsic value that increases over time. Examples include art, antiques, baseball cards, stamps and other memorabilia. Collectibles also provide diversification in an investment portfolio as they don’t fluctuate as drastically like stocks and bonds do.
When it comes to precious metals, the IRS bases its taxes on its fair market value; this value can be determined by having your gold professionally appraised.
Whenever you sell gold, any profits that result will be subject to capital gains tax – just like when selling stocks or bonds. If you owned it for at least a year before selling it though, your taxes could be less as the IRS taxes long-term capital gains at lower rates than short-term ones.
Capital Gains
Capital gains occur when you sell an asset for more than its “basis.” The basis is defined as what was originally paid plus any commissions and fees associated with an investment. Conversely, any time an asset sells below its original cost it results in a capital loss.
Under United States tax law, any realized capital gains must be included on your income taxes as they accrue during ownership. Unrealized gains, on the other hand, do not incur taxes until they’re sold off; under current federal law however, most realized gains are taxed in the year of sale.
Some Democratic presidential candidates, such as Cory Booker, Julian Castro and Elizabeth Warren are calling for capital gains taxes to be structured on an accrual basis rather than sale-by-sale basis. This would more accurately measure and reflect inflationary changes while discouraging wealthy individuals from shifting assets before selling them off in order to avoid paying taxes.
Taxes on Income
Uncle Sam wants a piece of all you earn each year; income taxes are one of the primary sources of federal revenue, helping finance many government services and initiatives.
Wealthy Americans rely heavily on investment gains as a source of income, which are taxed at preferential rates or not at all if unrealized capital gains exist. Unfortunately, traditional estimates of tax rates don’t take full account of their benefits for the top 1 percent.
Unless you can pay your taxes on time, the IRS could seize assets such as your car and home if they cannot come to an arrangement on their own. They usually only seize property when all efforts to negotiate an amicable agreement have failed; otherwise they report you as currently not collectible which does not erase your debt but simply delays collection until you can.
Taxes on Investments
Gold has long been seen as an inflation hedge and can provide security during economic downturns; however, before investing in precious metals any investor should carefully consider tax implications.
The IRS treats physical gold and other precious metals as capital assets with any financial gains realized from selling them being considered taxable income. Gold coins and bars sell at 28% tax rates like collectibles while gains from most investment assets fall between 15%-22% for long-term capital gain taxation rates.
Investors must also be wary of misleading claims made by unscrupulous dealers. Some claim their gold transactions do not require reporting to the IRS and, thus, federal income taxation isn’t applicable – but under current rules any purchase exceeding $10,000 cash must be reported and dealers must issue 1099B forms directly to the IRS as with most purchases of goods or services for business use.
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