Can the IRS Tax Gold?
Many investors worry that selling gold investments will trigger capital gains tax liability; however, careful tax planning can alleviate this worry.
Capital gains taxes apply in the US when profits from selling assets with an increased value are realized upon selling. Your liability depends upon both how long you held onto them and your income tax bracket.
While the IRS typically doesn’t charge sales tax on most traditional financial investments, they do assess sales taxes when selling gold bullion for profit. This levy typically applies when selling bullion as profits.
When purchasing precious metals through a dealer, your purchase could be subject to sales taxes based on where you reside and the type of coin purchased. Some states impose additional sales taxes for investment-grade coins with higher numismatic values than pure bullion coins.
Physical gold coins purchased for their silver and gold content typically do not fall under sales taxes, as are legal tender coins issued by governments with face values. It is wise to consult a tax professional in your particular case but in general gains on gold coins held less than one year are taxed at short-term capital gains rates, while gains on collectibles held over one year will incur an additional 28% collectors’ capital gains tax rate.
Capital Gains Taxes
The IRS considers precious metals like gold as collectibles similar to art or antiques; therefore, any profits made when selling physical gold bullion are subject to capital gains taxation.
Tax rates depend on how long you held onto your gold. If it was sold within one year of acquisition, taxes will apply at an ordinary income rate; for assets held longer than one year they’ll be taxed at lower capital gains rates.
Investors seeking to minimize their tax burden should look towards investing in mutual funds or ETFs that don’t purchase physical gold for best results. Doing this can save a great deal in fees, storage charges and buying costs, all of which reduce after-tax returns while also avoiding paying the higher 28% capital gains tax rate when sold later on.
Exchange Traded Funds (ETFs)
Precious metal investments present unique tax considerations depending on how you buy and sell them. For instance, physical gold coins or funds holding physical gold are considered collectibles by the IRS and subject to a maximum capital gains rate of 28%; this compares more favorably to investment assets like stocks that can be taxed at either 0%, 15% or 20% depending on when they were held for at least one year before sales occur.
However, when investing in precious metals through mutual funds or exchange traded funds (ETF), such investments are generally taxed like any other stock or bond investment – this includes traditional and Roth IRAs as well as brokerage accounts.
Investors purchasing and selling physical bullion must file Form 1099-B with the IRS to prevent tax evasion, while dealers who sell physical bullion must also complete these forms for every transaction they complete with customers.
Purchasing physical gold comes with various tax implications. One such impactful impact involves dealer reporting. Under federal laws designed to monitor large commodity transactions and prevent money laundering schemes, precious metal dealers are required to disclose any cash payments exceeding $10,000 to authorities. This process helps monitor any money laundering schemes.
Happily, most bullion purchases do not fall under these disclosure requirements. One exception would be when using actual cash or monetary instruments such as money orders, cashier’s checks or traveler’s checks that collectively exceed $10,000. When making these types of payments a dealer must provide the IRS with an official disclosure document known as Form 8300 for submission.
The IRS currently taxes gold coins at the same maximum rate as collectibles – 28%. They should also be treated as ordinary income and reported accurately upon sale, making a consultation with a CPA or tax professional highly advised before purchasing gold.