How Are Gains on Gold Taxed?
Gold investments are taxed at the same rate as stocks and mutual funds; however, inheritance coins may be treated differently by the IRS: If received as an inheritance by its beneficiary, they qualify for long-term capital gains treatment.
The IRS classifies physical gold investments as collectibles, meaning investors must pay taxes on profits when selling them. Thankfully, there are strategies available that may help minimize these taxes.
Cost basis
Selling gold coins or bullion may expose you to capital gains taxes; however, you can minimize them by keeping accurate records of cost basis and sale price for each transaction. This will enable you to ascertain exactly how much profit was realized from selling your gold. It would also be wise to consult a tax professional so as to claim all possible deductions.
If you inherit gold coins as inheritance or gifts, their cost basis must be calculated using their fair market value at the time of their previous owner’s death. Gold in inheritance or gift forms usually incurs lower tax rates than short-term capital gains, while long-term gains can be rolled over in order to avoid paying a maximum collectors tax rate of 28%.
Physical gold investments are typically taxed as collectibles, while their gains from ETFs and closed-end funds are taxed at capital gains rates. You can improve after-tax returns by investing gold through an IRA which permits you to claim tax deductions on investment income.
Taxes on long-term gains
Gold coins and bullion sold at a profit are taxed at a capital gains rate, which can be calculated by subtracting their original purchase price plus associated costs from their selling price; such costs could include appraisal fees, storage fees or any other associated expenses. Heirloom gold also receives long-term capital gains treatment when sold, though inheritances of gold may incur an additional 28% collectibles tax rate upon sale.
There are ways to lower capital gains taxes on gold investments. One is investing in an ETF or mutual fund that tracks its price rather than owning physical gold directly; however, these investments generally incur more in insurance and storage costs and bid/ask spread fees when buying and selling.
Reinvesting any profits from selling gold into new precious metal purchases may also help lower tax burdens; however, this strategy could prove costly if frequent investments are desired.
Taxes on short-term gains
Gold has become increasingly popular as investors seek protection against inflation and geopolitical risks. Unfortunately, many don’t realize that the IRS taxes profits on precious metal investments differently from other forms of financial assets – creating a potentially substantial tax bill upon selling your precious metals investments.
The IRS considers physical quantities of gold to be collectibles and taxes them at a maximum rate of 28% – far higher than ordinary long-term capital gains rates of 15% for most taxpayers and 20% for high-income taxpayers.
Investors can reduce the high tax rate by investing in IRA-approved gold mining ETFs that do not purchase physical gold, such as iShares Gold Trust (IAU) and SPDR Gold Trust (GLD). Such funds can be sold without incurring short-term capital gains taxes; plus any gains can be offset against losses for further tax savings.
Taxes on futures contracts
Gold investments are popular investments, and many people make a profit when selling their metals. But it’s important to keep in mind that the price of gold fluctuates and investors could potentially lose money in some circumstances. Also keep in mind that any sale of gold incurs taxes, so invest your metals wisely so as to minimize your tax bill.
Typically, gold sold to investors at long-term capital gains rates of 28% is subject to IRS taxes; however if held longer and indexation can help qualify you for lower tax rates.
Sprott Physical Bullion Trusts offer investors an investor-friendly Qualified Employee Pension plan (QEF) election that enables them to significantly lower their tax liability by classifying precious metals as “collectibles”. You must keep track of your original cost basis for every transaction as the value of gold can be calculated by subtracting its selling price from its original purchase price.
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