How to Avoid Taxes on Gold
There is no legal way around paying taxes on gold; however, long-term investors in coins and bullion may qualify for lower long-term capital gains tax rates.
The IRS seeks a portion of any profits made from precious metal investments. How much you owe depends on how long and at what income level the assets were held for investment purposes.
1. Avoid Buying Physical Gold
Physical gold purchases are an expensive venture, including dealer commissions and sales tax in some states, storage costs and storage space requirements. Furthermore, the IRS mandates those selling precious metals report these sales when filing their taxes annually.
IRS taxes profits on gold collectibles at around 28%, which is much higher than the regular long-term capital gains rate. To circumvent this tax burden, investors can invest in mutual funds or ETFs that don’t invest in physical gold directly.
Investors can purchase and store precious metals through companies offering safe, secure storage programs at competitive rates. Before opting to store precious metals on their own, though, be mindful that you can only claim tax deduction on the original cost basis (where you purchased your gold). You cannot deduct appreciation or market value from your taxable income.
2. Invest in Exchange-Traded Funds (ETFs)
Gold investors have several ways they can reduce the tax burden when investing in precious metals, including ETFs or mutual funds that do not hold physical gold, futures contracts and other financial instruments tied to gold, and consulting an accountant and/or lawyer before making investment decisions. It’s wise to seek legal and/or accounting advice before making any decisions related to investing.
The IRS classifies physical gold and other precious metals as collectibles that are subject to tax at a maximum rate of 28%. Investors can reduce capital gains taxes by calculating their cost basis (original purchase price plus costs associated with storage and insurance) which will then be subtracted from sales price when selling item. They may also offset any capital losses with gains on other investments.
3. Invest in Mutual Funds
Investment in gold mutual funds can be one of the easiest ways to avoid paying taxes on precious metal investments. Gold mutual funds often charge lower costs for insurance, storage and shipping than individual sellers. Furthermore, the IRS treats gold mutual funds and ETFs similarly when taxation comes up.
However, if you sell your precious metal investment for more than it cost to buy, capital gains tax must be paid on any profits made from selling. The rate depends on how long you owned it for and your income tax bracket; some countries even have lower long-term capital gains rates and exemptions for senior citizens.
4. Invest in Bonds
Profits on precious metal investments may be subject to taxes; however, there are ways you can lower the burden. Here are a few ideas.
Gold investments can be an excellent way to diversify your portfolio and protect against inflation, geopolitical risk and potential recession. But before making any purchases it’s essential that you understand all of its tax implications.
Typically, the IRS considers gold and other precious metals to be collectibles and taxes them at a higher rate than other investments (like stocks held over one year), thereby diminishing any profit when you sell these precious metals.
5. Invest in Gold Loans
Gold investments can provide an effective means to diversify your portfolio, yet it’s crucial that you understand its tax repercussions and plan accordingly in order to minimize what you owe in taxes.
The IRS classifies physical quantities of precious metals as collectibles, meaning they’re taxed at a higher rate than investments such as stocks held for more than one year – up to 28% in this instance.
If you wish to avoid paying this high tax rate, one option would be purchasing gold from lenders who offer shorter loan repayment terms – typically three to five years depending on your lender – so as to postpone paying capital gains tax on precious metal investments.
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