There are various strategies available to you when selling physical gold to save on capital gains tax, depending on your particular circumstances. One method may be investing in funds or ETFs that don’t purchase physical gold directly.
Capital loss harvesting is another strategy you could employ to hedge against gains from investments that go south.
Capital Gains Tax
Capital gains tax (CGT) is a government tax on any profit you make when selling specific assets, such as antiques, shares, precious metals or second homes.
According to current federal tax law, short-term capital gains are added to your ordinary income and taxed at normal federal income tax rates; long-term gains on the other hand are subject to lower rates of taxation.
Calculating Capital Gains Tax can be complex, but using a capital gains tax calculator makes the calculations easier. These take into account both sale price and purchase price differences of your assets when calculating what tax will need to be paid on them.
The calculator takes your tax bracket into account; the higher it is, the more in taxes you will owe. Finally, it asks how long you have owned an asset – capital gains tend to be lower when held for longer.
Income Taxes
Gold is considered liquid, meaning you can easily convert it to cash quickly and efficiently. Conversely, selling stocks through your brokerage account may take several days before being transferred into your bank account or sent as a check to you directly. Selling collectibles like art may even take longer due to limited customers who will purchase the piece.
The Internal Revenue Service views physical gold in jewelry, coin and bar forms as a capital asset and therefore any profits realized are subject to capital gains taxes.
Physical gold investments that have been held for at least one year are taxed at long-term capital gains rates, which are lower than short-term rates (up to 28%). Furthermore, investors may use any capital losses from other investments that they incur during that same tax year or previously to offset profits on physical gold investments held longer term.
Offsetting Gains
Gold investments can be an excellent way to diversify your portfolio, but it is crucial that you understand how taxes work on this type of investment, particularly capital gains taxation which could reduce the after-tax return.
Gold investments may be subject to various forms of taxes depending on how long they’ve been held for. If you own physical gold for over one year, it should qualify for lower long-term capital gains rate of 28 percent; however, selling coins or bullion at a loss could offset any capital gains tax you would otherwise pay.
Importantly, any profit on the sale of physical gold must be reported to the IRS via Form 1099-B in order to prevent tax evasion by non-corporate sellers and ensure investors understand any possible tax implications on their investments. Working with a financial advisor is one way of mitigating taxes associated with precious metal sales transactions.
Offsetting Losses
As with other investments, gold investors are subject to capital gains tax when selling them for profits. By holding your physical gold investments for one or more years and taking advantage of long-term capital gains rates which typically have lower tax rates than short-term rates, long-term gains taxes could potentially be reduced further by offsetting any capital losses from other investments that were sustained either during that year or carried over from prior tax years.
As opposed to other investments that may generate passive income or interest, physical gold and ETFs classified by the IRS as collectibles are subject to a maximum capital gains tax rate of 28% – still lower than income tax rates.
Calculating your tax liability begins by establishing your cost basis – or original purchase price of precious metals that will be subtracted from their sale price to calculate taxable profit.