Is Investing in Gold a Tax Write Off?
Physical gold investments like coins and bullion are generally classified as collectibles and subject to taxes at a maximum collectibles rate of 28%.
However, there are ways to minimize taxes. Working with a financial advisor is the key to understanding effective strategies to decrease gold investment taxes and request your free information kit today!
Investments that generate capital gains can help build wealth for retirement. The tax rates you face depend on how long you hold on to them and can vary significantly.
Taxable capital gains result from the difference between the sale price of an asset and its cost basis – that is, how much you paid initially plus any costs related to buying or improving it – and its sale price.
Unrealized capital gains refer to gains that exist only on paper; those which have not yet become reality. Gains are subject to tax when selling an investment like real estate or shares.
Current tax regulations tax capital gains at different rates depending on how long and income level are considered factors in holding assets, with different rates applicable depending on where assets were held for longer. Indexing capital gains could help address some problems; however, doing so would likely create further complications and raise new ones.
Gold may provide some protection from economic turmoil, but its investments come with their own set of drawbacks. Gold has historically trailed behind stocks when it comes to returns and doesn’t provide cash flows or dividends either.
Physical gold purchases can be costly, from the high markup for jewelry production and storage costs to its difficulty in being resold at its true spot price by pawnshops.
Gold ETFs and mutual funds offer you exposure to this commodity without actually owning the physical metal itself, yet these funds typically charge an expense ratio that could eat away at your returns.
Precious metals provide reliable returns as an investment, yet may come at a surprising tax cost for investors. According to IRS classification rules, collectibles like gold are taxed at 28% long term capital gains rate versus 15% or 20% long-term capital gains rates used on most other investments held for one year or longer.
Physical holdings of gold and silver are subject to this tax rate, while ETFs that hold these precious metals won’t because they don’t act as trusts or directly invest in them themselves. When selling precious metals, taxes owed depend on its initial price as well as its “cost basis”.
Gold can help minimize tax liabilities. Many investors elect to place their gold into an Individual Retirement Account (IRA), as the IRS offers tax benefits such as deductible contributions and tax-free withdrawals depending on which type of IRA was established.
Exchange-traded funds (ETFs) are mutual funds that trade like stocks on an exchange, tracking specific indices or segments of the market and investing in stocks, bonds and commodities.
There are various kinds of ETFs. SPDR Gold Shares, iShares Silver Trust and Aberdeen Standard Physical Palladium Shares are examples of physical asset ETFs; other varieties like United States Oil Fund by USO Commodity Funds and Aberdeen Standard Physical Platinum Shares hold futures contracts instead, which may produce different results than owning physical commodities directly.
Exchange fees are charged when buying and selling shares on an exchange, in addition to management and distribution (12b-1) fees charged by ETFs. Often this fee represents a percentage of average net assets; investors should always refer to the ETF prospectus for further details.