How Do I Avoid Capital Gains Tax on Gold?
The IRS considers physical gold coins and bars collectibles and taxes them at a higher rate, so keeping meticulous records of your purchases and sales transactions is essential for accurate tax reporting.
Financial advisors can assist in reducing tax liabilities by suggesting investing in gold ETFs or mutual funds rather than purchasing physical gold.
1. Keep it in a Tax-Advantaged Account
Gold coins and bullion are considered collectibles by the IRS and subject to higher rates than investments such as stocks. When selling physical gold for profit, you owe 28% capital gains tax (CGT).
Investing in exchange-traded funds that own gold or silver bullion and follow its price could reduce your capital gains tax liability (CGT). Just be sure to correctly track their cost basis!
Gold coins may help reduce your capital gains tax bill if they have been given to you as an inheritance or gift, provided they have a cost basis established by their donor; then when sold, this cost becomes part of your cost basis and must be taken into account when selling. However, this strategy requires close record keeping and compliance with IRS rules; sales taxes also must be paid to each state individually.
2. Keep it in a Tax-Advantaged Retirement Account
Gold IRAs allow individuals to invest their pre-tax retirement dollars in physical precious metals through accounts regulated by the IRS that offer flexibility.
When purchasing and selling investments such as stocks, mutual funds or real estate property, gains and losses may occur. Capital gains tax must be applied against your gains while losses can be subtracted from taxable income.
If you plan to invest in physical gold through a self-directed IRA, the IRS requires that it is kept in an approved storage facility and insured against theft or damage. Some companies provide this service as part of their IRA account offerings while others charge fees to ship and insure precious metals IRA investments. Be sure to review fees with any reputable precious metals IRA custodian before investing.
3. Keep it in a Tax-Advantaged Investment Account
Gold investments made within a tax-advantaged account may provide lower long-term capital gains rates compared to those not held within such an account, and you can offset any capital gains you experience one year against any losses from other assets, reducing overall tax liability.
Physical gold coins may be subject to capital gains tax (CGT), while currency from the Royal Mint such as Britannias and Sovereigns is exempt. Gold bars or exchange-traded funds that invest in physical gold could incur CGT when sold at a profit.
Assuming you purchased and held onto gold for at least 12 months before selling it, long-term capital gains tax rates should be significantly lower than short-term ones that utilize your regular income tax rate.
4. Keep it in a Tax-Advantaged Trust
Gold can be an attractive investment, but its tax consequences should not be overlooked. To minimize taxes associated with investing in gold coins, keep detailed records of each purchase or sale as you go – this includes receipts, invoices and market values at each transaction date.
Typically, when selling gold after holding it for more than one year, its profits qualify as long-term capital gains and may be subject to lower rates than short-term ones. You can offset your gains with capital losses from other investments.
Gold investments can be lucrative investments, but the amount of taxes you owe depends on which investment vehicle and for how long. To maximize after-tax returns, consider purchasing gold through an IRA that allows investors to invest in gold bullion and coins; doing so could increase after-tax returns significantly.
5. Keep it in a Tax-Advantaged Investment Account
Gold is a valuable investment and celebrated across cultures as a sign of wealth, but you should be wary of its tax implications when owning physical gold as the IRS classifies precious metals as collectibles and taxes them differently from other investments.
If you sell gold for more than what it cost you, a capital gains tax will be due. The rate depends on how long it has been held before being sold off – long-term gains will incur lower rates.
Your capital gains tax liability may also be reduced by offsetting them with losses from investments made during that year or carried over into the following one.
Categorised in: Blog