Tax Implications of Selling Precious Metals
Selling precious metals can be a lucrative way of earning extra income, but before making this move it is crucial that you understand all of its tax implications.
State laws vary regarding how much silver can be sold without incurring reporting requirements; in this article we’ll look at these regulations and their ramifications.
Thresholds and limits
There are various factors that determine whether or not you need to report silver sales. First, it is crucial that you differentiate between legal tender coins issued by governments and numismatic coins with greater worth than their face value due to rarity or historical significance; only legal tender coins must be reported upon sale without penalty from the IRS.
Precious metal dealers are legally required to report transactions where the value of bullion exceeds $10,000, in order to reduce money laundering and other illegal activities. Furthermore, some states impose sales taxes when selling precious metals; it is therefore crucial that any individual selling silver assets consult with an experienced tax advisor prior to selling any assets.
Reporting requirements
Some precious metal buyers and sellers can become confused by the variety of state, federal and international reporting requirements for precious metal transactions. These rules were intentionally written in such a way as to cause confusion; or used as blunt instruments by hard sell telemarketers trying to make sales. Either way they cause genuine chaos.
Misunderstandings around cash reporting and 8300 forms often arise. While these requirements were designed for monitoring bullion sales on national commodity exchanges, they don’t make sense when applied directly to private sales of precious metals.
If you purchase silver from a dealer using cash payments (bank draft, coins or traveler’s checks totalling $10,000 or less) that do not total more than $10,000 and your total is $10,000 or under, no Form 1099-B filing with the IRS will be necessary; however this exemption does not exempt you from capital gains tax in case the purchase results in profit; please consult a tax professional for further advice. Similarly if purchasing precious metals using bank draft, cashier’s check or money order then they must report this transaction on Form 8300 to report.
Tax implications
Silver sales that require reporting are those in which dealers accept physical cash or cashier’s checks for over $10,000 from customers. This reporting requirement was put in place in order to combat money laundering; it does not apply to transactions conducted online or using credit cards.
The IRS mandates that customers selling precious metals that exceed certain quantities be provided with 1099B forms – similar to what many taxpayers receive for income from selling property or investments.
Tax liability when selling gold and silver depends on their initial purchase value – known as cost basis – which ultimately determines if or when capital gains tax applies. That is why it is vital that any significant sales of precious metals be conducted in consultation with an expert tax practitioner in order to prevent costly errors from being made later on.
Conclusions
Selling precious metals can be an excellent way to diversify your investment portfolio, but it is crucial that you understand the tax ramifications. Failing to report this sale could incur severe penalties from the IRS.
Avoiding penalties by selling silver through dealers with no reporting requirements – for instance a local coin dealer or pawn shop – is often best, although eventually the government could discover your transaction and assess a fee against it.
At the end of the day, it is up to you to decide whether to sell silver for profit. While its benefits are evident, it would be prudent to consult a financial or legal expert prior to making any such decisions – this will ensure you act legally and within the law, potentially saving both time and money down the line by preventing costly errors.
Categorised in: Blog