There are various methods for investing in gold, from physical bullion to futures-backed ETFs – each has different tax implications.
Shares in gold mining stocks and funds are subject to tax at a maximum rate of 20%; physical gold however is considered collectible and taxed at 28%.
Taxes on Capital Gains
The IRS taxed any gold or silver bullion sales based on your individual income tax bracket because they consider such precious metals a collectible, similar to art or antiques.
However, that doesn’t mean investors can’t lower their capital gains tax (CGT) liability with careful planning and the help of a financial advisor. By optimizing investments to reduce CGT liability.
Physical gold or silver investing can reduce your tax bill because you only pay tax when selling at a profit, although this strategy requires being vigilant about tracking and reporting your cost basis.
An alternative approach would be investing in an ETF which holds physical gold bullion in its portfolio and buys it on your behalf, much like an individual bullion purchase would. These ETFs tend to be taxed as securities rather than collectibles – however it would be prudent to consult a tax expert prior to making investment decisions based on potential CGT liability.
Taxes on Selling
When selling gold, any profits are subject to taxes as capital gains. The IRS will calculate these by subtracting its original cost from current fair market value; then they are taxed at up to 28% compared with investments held for more than 12 months which typically only receive taxes at 15%.
Physical gold (coins and bars) is treated like other collectibles under the tax code; similar to baseball cards or rare stamps. If held for over one year, physical gold may qualify for lower long-term capital gain rates.
However, you can invest in gold through non-physical means as well. Mutual funds and exchange-traded notes that track its price may provide alternative investment vehicles. Such investments tend to be subject to ordinary income tax rates which tend to be higher than long-term capital gains rates.
Taxes on Physical Gold
Physical gold investments may not technically be tax-free, but they may often be more tax-efficient than other forms of investment gold. Under IRS rules, precious metals considered collectibles receive a higher collector’s tax rate (currently 28% of sales price) compared with short-term capital gains taxes or long-term capital gains taxes on other assets held for longer than one year – making physical gold more appealing to investors.
Capital gains taxes on gold investments can be minimized through strategic overall tax planning. Your individual financial circumstances are unique; working with an experienced tax professional to maximize profits on all your investments is best way.
Pre-tax accounts like traditional or Roth IRAs offer additional tax advantages when investing in physical gold investments, and don’t apply any sales taxes for coins that contain gold or silver content as legal tender.
Taxes on ETFs
Gold can be an integral component of any investment portfolio, serving both as an inflationary hedge and diversifying against losses from riskier investments. Investors should, however, be wary of how taxes may impede profits when selling gold.
The IRS classifies physical quantities of gold as collectibles, subject to the highest long-term capital gains rate of 28%. ETFs that hold precious metals could also fall under this taxation regime; however, those not structured as trusts but instead hold commodity futures contracts or derivatives may remain untouched by it.
ETFs and mutual funds offer investors access to gold without incurring the costs associated with physical ownership, including dealer markups, storage charges, sales taxes and management fees. Although subject to capital gains taxes like stocks and bonds, investors can offset gains with losses from other investments which will reduce their taxable income.