Can an LLC Invest in Gold?
Precious metals offer investors looking to diversify their retirement portfolios an invaluable layer of security; yet many are uncertain how best to invest under IRS guidelines.
Self-directed IRAs have become an increasingly popular investment option, offering the same contribution limits and age-based distribution rules as traditional IRAs.
Benefits
Gold can be an attractive asset to invest in during times of economic instability and inflation, as its value typically appreciates over time. Gold’s low volatility may make it ideal for long-term investments.
Gold investments come in various forms, from physical coins or bars, direct investments in mining companies, or purchasing shares of funds that track gold prices. Although physical gold tends to be less volatile than either, mining companies and funds often exhibit greater price fluctuation than physical forms of the precious metal.
Many investors opt to form an LLC when purchasing precious metals as an investment, as this helps ensure the chain of title for any potential claims against your assets are clear. An LLC also provides asset protection that bank accounts might not. Plus, an LLC allows investors to invest in precious metal-based IRAs – an effective way of diversifying portfolios and combatting inflation!
Taxes
Gold investments provide a safe haven from inflation and market instability. But their price fluctuates and don’t generate dividends or interest payments, so gold shouldn’t make up more than 5-10% of your portfolio.
For investors who prefer not to purchase physical gold coins and bars, there are other ways of investing in the precious metal besides coins and bars – including gold funds, ETFs and shares in mining companies that produce it. Tax treatment of such investments differs significantly from physical gold; gains on them are taxed as ordinary income rather than capital gains and subject to an additional maximum rate of 28% under collectibles rules.
Investors must carefully consider this before making their investment decision. Luckily, unlike with rental real estate where an LLC must register to operate in each state where its assets reside, the chain of title for gold and silver does not need special permission or licensing to sell them.
Asset Protection
Gold has long been seen as a way to protect wealth during times of economic distress. According to Investment News, its value tends to remain stable or even increase during times of high inflation or recession; however, unlike real estate or mutual funds, gold does not produce cash flow; its profitability depends on someone agreeing to pay more than you did for it – something Warren Buffett avoids doing in favor of more profitable ventures such as real estate investments.
The IRS taxes any gains on precious metal investments similar to rental properties and other financial investments; any capital gains are taxed at a lower rate than earned income.
For the purpose of minimizing tax liabilities, when investing in physical gold it should only be purchased through a trusted broker or dealer. Or alternatively consider purchasing shares of an exchange-traded commodity which tracks its price without having to incur storage and insurance fees.
Liability
No matter whether you invest in physical gold, shares of gold mining companies or futures and options contracts, it’s essential that you understand how these investments are taxed. Gains on financial assets are classified by the Internal Revenue Service as capital gains – any money gained due to changes in market value without any effort being put in by yourself.
Physical gold assets such as coins and bullion are classified as collectibles for tax purposes, meaning their gains are taxed at a maximum 28% rate instead of the 15% long-term capital gains rate applied by most taxpayers. Furthermore, dealers may charge storage and handling fees and management fees can further decrease your returns after taxes have been deducted.
Prior to making any purchases of precious metals, it is vitally important that title be transferred into your LLC for asset protection purposes. A Wyoming LLC costs less than $200 annually – providing an affordable way of safeguarding gold and other valuables.
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