Avoiding Taxes on Gold
Gold can be an attractive investment option, but before purchasing physical gold it’s essential to understand its tax ramifications. Physical gold falls under collectible category and is subject to higher capital gains tax rate of 28%.
However, there are various strategies you can employ to reduce the taxes associated with gold ownership.
1. Invest in ETFs and Mutual Funds
Gold and other precious metals can be an asset in your portfolio that stands the test of market instability more consistently, acting as a great protection against inflation. But be wary when considering any investment involving precious metals; always bear the tax implications in mind before proceeding.
Physical gold and precious metals are taxed as collectibles by the IRS, meaning investors could face higher capital gains rates than usual when selling these investments if their tax planning strategy does not reduce this liability. With careful tax management strategies in place, however, investors can minimize this liability and ensure maximum return.
One way to reduce tax rates is to invest in ETFs and mutual funds that don’t hold physical precious metals as assets. Such ETFs don’t incur the higher 28% collectibles capital-gains tax rate and can even be held in taxable brokerage accounts.
Gold futures contracts offer another viable investment option. According to CBS News, profits from such contracts are taxed at 60% long-term and 40% short-term capital-gains rates, significantly less than the standard 28% capital-gains tax rate.
2. Invest in Sovereign Gold Bonds
As with other financial assets, gold and silver investments are subject to capital gains taxes when sold for profit, according to the IRS’ standard capital gains rate of 0% to 28%. Taxes may be reduced if your losses offset your gains; similarly, receiving precious metals as gifts or inheritance may require no taxes at all; it all depends on their value when given or received as inheritances.
To save on taxes on gold investments, consider purchasing sovereign gold bonds (SGBs). BondsIndia provides information about them or visit your local bank or post office to purchase them; just ensure the liquidity of any series that interests you before investing – contact a financial advisor with any inquiries about tax-free gold investment options.
3. Invest in Gold Futures
There are various methods for investing in gold. You have several options for doing so; physical gold like coins or bars may be purchased directly, an ETF that holds physical gold may be invested in or you could purchase gold mining company shares. When investing directly in physical gold or an ETF backed by physical gold is purchased and taxed at higher rates than standard long-term capital gains rates.
Investments that don’t hold physical gold can save on storage, insurance and transaction costs while offering reduced risk in case prices decline unexpectedly. But be wary! Loss could still occur should prices decline significantly over time.
If you’re seeking long-term investments in gold, consider purchasing futures contracts instead of direct ownership. This allows you to avoid tax payments until selling over its original purchase point; seek guidance from a tax professional if needed for assistance in doing this.
4. Invest in a 1031 Exchange
Gold investment through an IRS 1031 exchange allows investors to defer paying taxes on their profits until later when selling off another property of “like kind”. In order to qualify as a tax-deferred exchange, any property purchased must match exactly with what was relinquished in terms of type and use – for instance a “like kind” exchange cannot occur between two completely dissimilar properties.
If you invest in gold coins for investment purposes and then sell them at a profit, the IRS wants its piece. Capital gains on precious metals are determined by subtracting their sales price from their cost basis (original purchase price plus costs associated with storage and appraisal). Accurate reporting requires keeping meticulous records, so consult a tax professional if any questions arise regarding accurate reporting.
Categorised in: Blog