How Does the IRS Tax Gold?
Profits made when selling certain investments are generally subject to taxation; the method of taxation depends on both what type of investment it is and its length of ownership.
Physical gold and silver investments are considered collectibles by the IRS and subject to up to 28% in taxes on long-term gains, though your cost basis (purchase price plus costs like storage fees) can reduce the taxable gain.
Collectibles
When it comes to financial investments, the IRS considers your profits capital gains. Gains can be defined as any increase in value from market fluctuations that occurs without your involvement or effort.
The IRS classifies physical gold and silver as collectibles, meaning gains from selling these metals will be subject to an exceptionally high 28% capital gains tax rate when sold compared with long-term capital gains tax rates.
Investors can avoid higher taxes by buying and selling through Individual Retirement Accounts (IRAs), which provide more favorable tax treatment than regular brokerage accounts. They should also track their gold’s cost basis to minimize taxes; keeping receipts or documentation regarding purchases, sales prices and associated costs like storage or insurance costs is one effective way of doing this.
Precious metal dealers must report all cash payments of $10,000 or more made in cash to the IRS via Form 1099 series to help detect tax evasion and money laundering by tracking these large sums of money. This helps the government combat tax evasion and money laundering through tracking these large transactions.
Investments
Gold and other precious metal investments can be an excellent way to diversify your portfolio. But you must be mindful of how the IRS taxes them when sold – gains on physical metal are considered collectibles, with tax rates of either 0%, 15% or 28% depending on your income level and filing status.
To reduce taxes on precious metal investments, one way is to purchase them through Sprott Physical Bullion Trusts which are taxed as long-term capital gains at ordinary income tax rates of 15% or 20%. They still require dealer markups and storage fees as well as management and trading costs, however.
The Sound Money Defense League and other free market advocates have long advocated for legislation to exempt physical gold and silver bullion coins and bullion from federal income taxation, and currently the House is considering this legislation; it may pass this year.
Coins
Gold coins are an increasingly popular investment option and can be sold at a profit, yet the IRS taxes them as any other asset. Any time a coin is sold at a profit, a capital gains tax must be applied depending on how long it was held by its seller and any profit they generated from selling it.
However, there are ways to minimize your tax bill when investing in gold. Investors can opt for precious metals funds which hold physical bullion without physically owning it themselves; though taxable, these investments could benefit from having lower long-term capital gains rates of 15%-20%.
Investors must also exercise extreme care when buying and selling physical gold and silver to comply with IRS reporting requirements. Sales to dealers who accept payments of $10,000 or more cash will require filing an IRS report; failure to do so can result in fines or criminal prosecution.
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