Can the IRS Tax Gold?
Gold investments are popular choices among investors, yet physical bullion can incur tax liabilities when sold; such gains are considered ordinary income and taxed at 28%.
There are ways to minimize your tax liability. In this article, we will cover how selling precious metals without incurring significant tax burden will help.
Dealers are required to report sales of precious metals
Investment in precious metals is considered an investment and any profits must be reported on your tax returns. Since gold coins and bullion bars are considered collectibles by the IRS, their gains may be taxed at a higher rate than ordinary income; you can calculate this figure by subtracting the sales price from your cost basis.
Certain dealers are required to report customer sales of certain bullion items sold to the IRS on Federal Form 1099B; this obligation does not punish customers, but rather prevent money laundering. For instance, if someone buys 30 Krugerrands within 24 hours from one dealer they must report this sale to the IRS.
Dealers are required to report transactions involving cash payments exceeding $10,000, such as cash, bank drafts, traveler’s checks or money orders. Although they do accept these types of payment they must inform customers about this rule.
Gains are taxed as ordinary income
People investing in precious metals typically expect to sell them at a profit. Any profits realized must be reported to the IRS as ordinary income, though this overview should not replace professional tax advice; Bullion Exchanges suggests consulting a CPA or tax professional for further advice.
Physical gold investments are subject to tax at a rate of 28% as collectibles, much higher than long-term capital gains rates applicable to most other assets. This taxation rate especially impacts investors who own physical gold coins or bars outside their IRAs.
To avoid this pitfall, investors can look for ETFs that do not purchase physical gold; this will help avoid dealer markups and storage fees that eat into profits, yet may lead to lower net profits than ETFs with physical gold backing. However, this strategy comes with its own risk and could ultimately yield less net profits overall.
Gains are taxed as long-term capital gains
The IRS treats gains on precious metals as long-term capital gains, similarly to how it taxes other investment assets. Investors should consult a tax professional when planning how best to reduce taxes on gold investments; typically this involves avoiding purchases of physical metal and investing instead in ETFs (exchange-traded funds). However, this can be challenging due to dealer markups, storage fees and trading costs for physical metal purchases as well as management fees and trading costs associated with ETFs (exchange-traded funds).
Physical gold investments are considered collectibles and taxed at a maximum rate of 28% – far above the 15% long-term capital gains tax rate applicable to most other investments, especially among higher-income taxpayers. Thankfully, gains on gold held within an individual retirement account (IRA) are taxed at a reduced capital gains rate and any losses can be offset against other capital losses to help minimize your tax liability and maximize after-tax returns.
Gains are taxed as collectibles
Gold investors should understand how their investments are taxed by the IRS. Gains on precious metal investments are taxed at up to 28%, which is significantly higher than most stock LTCG tax rates. Investors can reduce their tax burden by limiting sales earnings or by increasing losses on other collectibles.
The IRS considers “collectibles” any tangible personal property with significant monetary value that falls into several categories, including works of art, rugs, antiques, coins, metals and gems, stamps as well as alcohol beverages. This broad definition includes such diverse objects as paintings, rugs antiques rugs metals gems stamps stamps and even alcohol beverages.
Understanding the tax-reporting requirements and cost basis calculations associated with physical gold and silver purchases may seem complicated, yet understanding them is a critical element of successful investing. Without knowledge of these rules, you could end up paying too much tax. By planning ahead carefully you can maximize after-tax returns from gold investments such as investing in mining companies or physical gold CEFs within an IRA.