Investors may not understand the tax repercussions associated with buying and selling precious metals. Under federal law, dealers must report sales by clients to the IRS via Form 1099-B.
Government-issued coins with face values that exceed $5 are exempt from sales taxes as legal tender. Any profits from their sales must still be reported annually to the IRS.
Capital Gains Tax
Gold bullion and coins purchased within the US generally do not fall under taxation regulations; however, any profits you gain from selling precious metals must be reported and paid for according to IRS guidelines. Capital gains taxes are due upon any gains realized upon sales whether physical metals or an ETF investment.
Tax owed when selling precious metals depends on their “cost basis,” which is equivalent to their initial purchase price minus their current fair market value (FMV) subtracted from original cost price. Since precious metals are classified by the IRS as collectible investments and any gains may be subject to up to 28% taxes, you may be able to postpone paying them by investing your sale proceeds into other assets like stocks or real estate using a 1031 exchange strategy.
State Sales Tax
Investing in precious metals can be costly once all fees, commissions and taxes are considered. Removing sales tax would help to mitigate some costs for investors while making precious metals an even more cost-effective investment vehicle.
Most buyers of precious metals invest in small increments as part of a long-term savings plan, using incremental amounts each time to build an asset base over time. Imposing sales taxes would penalize these prudent savers while encouraging less stable forms of saving.
At last, efforts to eliminate sales tax on gold and silver coins and bullion are making headway across several states. Sound money allies are currently pushing for legislation in Alabama and Virginia to extend existing exemptions while simultaneously initiating initiatives in Kentucky, Tennessee, Oklahoma, Maine, New Jersey Mississippi Florida as well as DC that if successful will remove another barrier that prevents precious metals from being treated as money; further dismantling the Federal Reserve monopoly over paper money.
Dealer Reporting Requirements
Customers in the US who purchase precious metals from dealers at a profit must report it on their income tax return and meet any reporting requirements of dealers as required by law.
These reporting guidelines are meant to monitor major commodity exchanges in the US and prevent money laundering activities. Therefore, if an individual makes multiple purchases within 24 hours from different dealers within a single day, all such purchases should be considered connected and must be reported accordingly.
However, some bullion products are exempt from reporting requirements; these include 1-oz Gold Maple Leaves, Krugerrands and Mexican Onzas bought in quantities of 25 or more. Furthermore, fractional ounce silver coins do not need to be reported because they fall into the collectible category rather than industrial product (as defined by IRS). Please consult your investment professional regarding further details.
Capital gains taxes for gold and silver items purchased in the US are calculated based on an item’s current fair market value (FMV) less its original cost basis (OCB), such as purchase price, inheritance or trade considerations.
Precious metals in most other countries are subject to VAT (value-added tax), with rates ranging from 7.7% in Switzerland (the lowest in Europe) up to 20% in France and Britain. Physical gold and silver can be stored in tax-deferred accounts such as Individual Retirement Accounts which allows investors to postpone tax payments until withdrawal of assets.
Investment in precious metals must also consider sales tax implications when purchasing or selling them, unlike most investments which usually do not need to be reported on an investor’s tax return and subject to capital gains taxes. Many states have laws exempting gold and silver sales taxes.