Gold and other precious metal investments come with tax consequences that investors should carefully consider. Any gains realized on assets sold for profit are subject to capital gains taxes at up to 28%.
Most assets, including stocks and bonds, are taxed at either 0%, 15% or 20% long-term capital gains rates depending on income level and filing status; however, physical coins considered collectibles can incur a maximum rate of 28%.
Long-term capital gains
Gold coins and bullion sold for profit in the United States are subject to capital gains taxes when sold, calculated by subtracting their purchase price from sale value, then multiplying that result by their marginal tax rate. Any such coins that were either inherited or gifted also incur capital gains taxes just like most investments do.
Long-term capital gains differ significantly from earned income taxes in that long-term capital gains are subject to standard rates of between 0%, 15% or 20%. When investing in physical gold coins, however, their tax liability can reach 28% as it’s considered collectible by the IRS; but there are ways you can minimize it: for instance investing in futures contracts instead which have preferential rates of 60% short-term and 40% long-term taxation that don’t change with your holding period length.
Short-term capital gains
The IRS taxes capital gains on gold coins at 28%, but there are ways to lower your tax liability. Invest in precious metals using tax-deferred accounts or ETFs holding physical gold bullion that are taxed at long-term capital gains rates instead of regular income rates – or both will help minimize tax payments on precious metal investments.
If you sell coins within one year of purchasing them, your profit will be subject to taxes at your standard income tax rate as the IRS considers gold coins collectibles taxable at this rate. However, an exception exists in Individual Retirement Accounts (IRAs) in which gold does not fall under collectible status.
When receiving gold coins as gifts or inheritance, capital gains taxes do not typically apply; however, you should keep track of their cost basis to provide useful information in case you decide to sell them later for a profit.
Collectibles
The Internal Revenue Service (IRS) considers gold and silver coins capital assets, so if you sell them at a profit you must pay capital gains taxes based on subtracting their cost basis from their sales price; these costs may include dealer markups, appraisal costs and storage charges.
Physical gold investments such as American Eagle coins and bullion are subject to higher tax rates than other assets due to being classified as collectibles, with the IRS levying up to 28% collectibles tax rate; this compares favorably with long-term capital gains tax rate which currently sits at 15% for most taxpayers. Thankfully, you do not pay income tax when inheriting or receiving gifted gold, providing significant relief to those unable to invest substantially themselves.
Futures contracts
Gold investments are among the most reliable forms of investing available today, holding their value more reliably than stocks, bonds or other forms of assets such as mutual funds. Furthermore, it acts as an inflation hedge while diversifying portfolios. Unfortunately, many investors remain confused as to how the IRS taxes gold investments.
Physical gold investments are taxed similarly to other investments, since your earnings when selling coins or bars depend on their sale price at that particular moment in time. Therefore, it is necessary to track its purchase price (including fees associated with ownership) so as not to overpay in taxes on gold ownership.
Exchange-traded funds that invest in gold bullion may offer an easy solution to the hassle of capital gains calculations by trading at either a premium or discount to their net asset value and offering lower storage and shipping costs than physical gold as well as higher liquidity than individual futures contracts. Just be mindful when selecting ETFs; some may provide riskier strategies that increase the possibility of financial loss.
