How Do I Avoid Capital Gains Tax on Gold?
As the capital gains tax allowance will soon decrease, you should explore all available strategies for effective tax planning to maximize profits and achieve greater growth.
Typically, physical gold is taxed as a collectible by the IRS, with sales of coins and bars subject to up to 28% capital gains taxation. But there are ways around this restriction and avoid paying such capital gains tax on precious metal investments.
1. Invest in ETFs
Most profits you make when investing in gold are taxed as capital gains; how much you owe depends on the type of investment. Physical gold investments are considered collectibles by the IRS and therefore subject to higher long-term capital gains rates of 28% than most other forms of investments.
However, by investing in ETFs backed by physical metal, you may be able to avoid paying this maximum capital gains tax. Such funds are organized as grantor trusts that hold precious metal directly, rather than trading futures contracts or stocks of mining companies.
No one can fully avoid capital gains taxes on gold investments, but smart tax planning can help minimize your tax liability. Here are three strategies that may help you pay less tax. A financial advisor may assist in optimizing investments so as to pay as little in capital gains tax as possible.
2. Invest in Gold Futures
Gold futures provide an alternative way of investing in physical bullion by giving you access to futures contracts that allow you to buy or sell it at a specific price for a fixed period. You can trade these contracts on stock exchanges.
Gold futures contracts are taxed as ordinary income, so they won’t help you avoid capital gains taxes on gold. But they may provide an excellent way for investors looking to diversify their portfolio with non-correlated assets.
inflation has recently reached 30-year highs, spurring interest in gold as an inflation hedge and safe haven during times of political and economic instability. However, investors should carefully consider any costs or fees associated with investing in gold; annual expenses can significantly lower after-tax returns; for this reason it’s wise to consult a financial advisor in order to maximize tax-saving returns from your gold investments.
3. Invest in IRAs
Gold IRAs can be an effective way to reduce capital gains tax liability on investments, but you should take some important steps before investing. Be sure to choose an IRA provider with an excellent track record and transparent fees structure for this investment decision.
Though the IRS does not treat physical gold as a special class of asset, its treatment differs with regard to futures contracts containing futures contracts held for less than one year – they are taxed at ordinary income rates while gains accrued over a longer timeframe are taxed as long-term capital gains rates.
When investing in gold through an IRA, always consult a qualified financial professional first. They can assist in selecting appropriate products to match your retirement goals while ensuring their precious metals are stored and insured properly. They can also guide you through the process of setting up and connecting a gold IRA with an IRS-approved custodian/depository institution.
4. Invest in Mutual Funds
Gold has long been an invaluable part of investor portfolios, as its value tends to remain more secure during periods of market turmoil than investments such as stocks. However, investors must be wary of any tax ramifications related to investing in gold.
IRS considers physical gold investments like coins and bullion bars collectibles for tax purposes. Any gains on these assets are taxed at up to 28% rates – significantly higher than the ordinary capital gains rate of 20%.
One way to reduce higher tax rates is through investing in mutual funds that invest in gold mining corporations or exchange-traded funds (ETFs). Mutual Funds or ETFs tend to be much more liquid than physical gold, carrying lower storage, insurance and shipping costs than their physical counterpart. They can even be held in an Individual Retirement Account for higher after-tax returns; mutual funds also make great diversifiers as their overall risk is easily limited compared to investing directly. In order to invest in mutual Funds you must comply with KYC requirements as well as possess either PAN Card or valid address proof.