Acknowledging the tax implications of investing is essential, especially when buying gold ETFs with physical exposure.
SPDR Gold Shares and iShares Gold Trust are ETFs that hold physical gold bullion, and like gold coins and bars they’re treated as collectibles for tax purposes, meaning long-term capital gains on these funds are taxed at 28%.
Taxes on Long-Term Gains
Gold ETFs that invest in physical metal exposure like SPDR Gold Shares and iShares Gold Trust have gained increased interest since Ukraine’s war increased investor demand for precious metals, but investors must remember that profits on such investments are taxed differently than profits on stocks, mutual funds or other securities investments.
Metal ETFs classified as collectibles will be subject to an extra 28% long-term gain tax rate compared to the 15% applicable to other investment assets, potentially significantly diminishing returns from these funds.
Futures-based ETF investors will notice a unique difference in their taxation structure. Since these products are based on commodity futures contracts, gains or losses reported on them will be reported using a K-1 form rather than 1099 form each year – this should make investing less cumbersome for investors.
Taxes on Short-Term Gains
Gold ETFs that track physical metal prices are taxed in accordance with direct physical ownership; however, ETFs holding gold futures contracts have an alternate tax treatment: gains or losses on futures contracts are taxed at a hybrid rate that includes both 60% long-term capital gains taxation and 40% short-term capital gains when they’re sold.
Commodity-based ETFs that own futures contracts must report gains or losses annually using a K-1 form, instead of 1099 forms. Therefore, investors in such ETFs require an investment advisor to supply year-end forms to them each year.
Physical gold investments don’t offer low-income taxpayers the same tax advantages of ETFs tracking stocks or bonds; their capital gains rates are subject to a maximum tax rate of 28% rather than the 15% long-term and 35% short-term rates that usually apply with most assets.
Taxes on Futures Contracts
Gold ETFs have seen enormous inflows of investment capital this year from investors seeking safety during market instability, but their tax implications can make financial planning more complicated than expected. If you purchase one without considering its tax repercussions first, the unexpectedly higher profits when selling could put your finances off track.
The IRS regards ETFs that invest in precious metal as collectibles and taxes them at the top 28% capital gains rate on long-term profits – unlike stocks, bonds or other investments which only incur 15% capital gains taxation rates on profits over long term. This tax can reduce returns while making your portfolio less diverse than necessary.
Some commodity-based ETFs, such as those tracking gold and other precious metal prices, may be structured as trusts and may generate a K-1 form for unitholders when selling shares; other ETFs that invest in futures contracts do not issue K-1 forms; instead they typically issue 1099 forms at sale time.
Taxes on IRA Investments
Many investors are turning to gold as an asset class of refuge during these uncertain times, only to discover it could incur higher tax rates than other assets.
ETFs backed by physical precious metals (like SPDR Gold Shares and iShares Gold Trust ) are treated like collectibles when it comes to taxes, according to accountants. When selling shares of these ETFs, any gains are taxed at the highest 28% rate for collectibles which can have a major effect on your profits.
Futures-based ETFs tend to be taxed like other stocks or bonds ETFs, with long-term capital gains taxed at 15% and short-term gains assessed at 35% – making these ETFs attractive investments for retirement accounts (IRAs).
