How Does the IRS Tax Gold?
Taxes due on precious metal sales depend on both what type of gold is held and its form.
Physical gold gains are taxed as collectibles at a maximum 28% rate, but investing in funds and assets that do not own physical gold may increase after-tax returns significantly.
Collectibles
Gold is considered a collectible by the IRS, much like art or antiques. Therefore, if you sell physical gold coins and bars at a profit to an end buyer for any amount over their original cost basis (original purchase price plus any expenses incurred to store or transport) and calculates your taxable profit at 28% collector’s rates instead of the 15% long-term capital gains rates applicable to most assets and taxpayers.
If you invest in gold indirectly through mutual funds or mining ETFs, any profits made are exempt from taxes. If, however, you trade your gold for another investment of equal or greater value then capital gains taxes would need to be paid on that new asset. Although certain states exempt precious metals from sales tax obligations; exact rules vary by state.
Investments
Precious metals are considered capital assets by the IRS and selling them can incur capital gains taxes of up to 28% when sold. The tax amount due depends on how long a person held onto them as well as its original fair market value (FMV). When receiving gold bullion as gifts or inheritance, no taxes are due when selling it; however any proceeds must still be included in your income statement for that year. Furthermore, certain dealers are required to file form 1099-B with the IRS when selling certain types of precious metals within US borders.
Investors have several gold investment options at their disposal. Annual fees and storage costs for different investments vary significantly, which could drastically impact after-tax returns. Consult an accountant or tax specialist in order to maximize your benefits.
Exchange Traded Funds (ETFs)
Precious metal dealers must report all profits made when selling physical gold and silver to the IRS. Furthermore, cash payments received on sales over $10,000 must also be reported so as to prevent tax evasion. These reports are known as 1099 forms and help keep track of large transactions while monitoring for money laundering activity.
Tax liabilities vary for investors depending on how long they own precious metals and their marginal income tax rate. Investors who sell within one year will incur capital gains taxes; those holding for two or more years could enjoy lower maximum collectibles tax rates. Gold investors could further decrease after-tax returns by opting for exchange traded funds which tend to charge significantly less in insurance, storage and bid/ask spread fees than physical gold investments do. It’s always wise to keep meticulous records and consult a tax specialist so they understand how the IRS treats profits earned when selling any precious metals investments they own.
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