There is no legal way of avoiding taxes when selling physical gold; any buyer claiming they can do this should be seen as suspicious.
Physical gold is considered a collectible and any profits are subject to regular income taxes at up to 28%; however, investors who purchase bullion-backed exchange-traded funds (ETFs) benefit from an advantageous tax rate.
Cost basis
Gold investments are an increasingly popular means of protecting against inflation and geopolitical risks, while providing an insurance against potential recession. If you plan to purchase bullion, make sure to understand its tax implications. There may be some unique circumstances affecting how much tax is due; one important aspect is your cost basis.
Physical gold’s cost basis refers to its original purchase price; for instance, if you purchased gold coins for $5,000 and sold them later for $6,000 profiteering with tax implications of $1,000 profit on sale. You can add other expenses, such as appraisal costs.
Purchase of physical gold and silver through an Individual Retirement Account (IRA) can help lower your tax bill; however, certain regulations apply when investing precious metals within such an IRA; these rules vary by state.
Capital gains
Gold investment options range from physical precious metals to exchange-traded funds (ETFs), both of which are taxed at the same rate as regular income by the Internal Revenue Service. ETFs tend to be cheaper than physical gold because you avoid insurance, storage and shipping fees – however before making a decision regarding an ETF purchase it’s advisable to consult an accountant regarding its potential tax consequences.
The IRS considers physical gold and silver to be capital assets, meaning when sold they could incur a capital gains tax of 28 percent for long-term gains. However, investors who purchase precious metals through futures contracts do not fall under this same category of taxes.
Investors should keep in mind that the IRS requires dealers to report profits through 1099s to avoid instances of tax evasion. While there may not be legal ways around capital gains tax payments, planning ahead and using smart strategies may help minimize their liabilities.
Taxes on collectibles
If you own physical gold investments such as coins and bars, when selling them it may incur taxes as the IRS considers precious metals collectibles similar to art or antiques. How much you owe will depend upon how long you owned the precious metal and your regular income tax rate.
Profits generated from selling physical precious metals are subject to regular income tax rates of 28%; however, you may qualify for lower taxes by keeping the precious metals for at least 12 months after purchasing them.
Avoid paying high taxes on your gold investments through strategic tax planning. Consult with an accountant or lawyer in order to maximize your tax benefits. Furthermore, selling some investments early and keeping others will minimize tax liabilities; this will minimize overall exposure to capital gains taxes.
Reporting to the IRS
If you purchase precious metals and sell them for more than what was paid for, any profits must be subject to capital gains taxes. These profits are calculated based on the difference between their buying price and selling price, and taxed at your normal income tax rate. Holding onto them longer can result in reduced tax rates when selling at a higher value; dealers are required to issue 1099-Bs for sales over $10,000 either in cash, money orders, bank checks or certified checks as proof of sale.
The Internal Revenue Service classifies gold bullion and numismatic coins as collectible investments and their gains are subject to a maximum capital gains rate of 28%. Investors can reduce their tax burden using a 1031 exchange, which delays capital gains taxes for investments that equal or surpass those being exchanged for another property of equal or greater value.
