Bullion products like gold coins are exempt from reporting as legal tender. Any gains on such pieces typically attract a lower long-term capital gains tax rate compared to most investments.
However, any dealer promoting any tricks or loopholes to avoid paying taxes on sales should raise red flags. Below we outline several key considerations to minimize tax liabilities.
Taxes on Capital Gains
Capital gains taxed at a lower rate than ordinary income are profits derived from selling many forms of assets, including shares of stock, business property and real estate. Their rate can differ depending on how long an asset was held by its owner as well as his or her tax bracket.
Capital gains are currently taxed in the year they are realized, meaning if you purchase something for $100 and sell it for $300, your taxable gain would be $200. Unfortunately, this system does not factor in inflationary effects; thus, any nominal increase in value would go untaxed.
One potential reform would be indexing capital gains for inflation. This would prevent distortions in the tax code and sheltering practices. Another is to impose a flat tax on capital gains similar to what exists for wages – making the process simpler for individuals who possess significant assets.
Taxes on Distributions
Distributions (also referred to as draws) from partnerships, limited liability companies (LLC), or S-corporations are usually non-taxable events; however if the amount exceeds an owner’s basis in the business then that portion can become taxable. To prevent having to pay taxes on distributions from your business make sure there is enough cash left in it to cover operating expenses and capital needs such as work capital requirements – Pursuit can assist with setting up lines of credit to provide working capital solutions for you business.
Taxes on Inherited Gold
Precious metals are known to be stores of value, which makes them attractive investments. When someone passes away, their beneficiaries can inherit precious metal assets either physically as coins and bars or through paper metals (stocks that track gold’s spot price). Either way, beneficiaries could discover that their inherited precious metals have increased significantly in value since when originally appraised; this can create tax liability obligations.
Gold that has been passed down from an ancestor is subject to long-term capital gains treatment. Heirs must identify their cost of acquisition – either its market value as of 1 April 2001, or, depending on whether receipts exist, any expenses incurred when purchasing it from their relative.
Should heirs decide to sell the metal that was bequeathed to them, taxes of up to 28% may apply. Therefore, it is wise to keep a record of its purchase price so as to prove this when selling in order to prevent paying any unnecessary capital gains taxes.
