Gold and silver coins are popular investments among investors looking to diversify their portfolios, but it is crucial that they fully comprehend the tax implications associated with such purchases before making their decision.
The IRS taxes precious metals at a maximum rate of 28% as collectibles, which differ from traditional investments like stocks and bonds in their tax treatment. Furthermore, state sales taxes and reporting requirements may apply as well.
Capital Gains Tax
Gold investments have long been included as an effective hedge against inflation and geopolitical unrest; however, many investors don’t realize their precious metal profits may be subject to taxation by the IRS at up to 28% depending on how long you hold onto their investment.
Physical holdings of gold, silver, and platinum are considered collectibles by the IRS and therefore subject to capital gains taxes when sold. You owe taxes based on your marginal income rate when selling these assets; but you may be able to avoid this tax by investing in gold-backed exchange-traded funds (ETFs), which track and trade like stocks or mutual funds so don’t incur capital gains tax when sold; the IRS offers lower long-term capital gains rates of 20% which you might take advantage of if holding onto ETFs for more than one year before selling.
State Sales Tax
The IRS treats physical gold (bars and coins) as collectibles similar to artwork or rare stamps. Any profits from selling these collectibles are taxed at ordinary income rates – up to 28% when held for more than one year.
As investors in states that impose sales taxes can take comfort knowing there is an easy deduction option available to them for those amounts, the IRS provides state sales tax tables on Form Schedule A as well as a worksheet to assist in calculating local sales tax deductions.
Before taking advantage of the state and local sales tax deduction, make sure that you accurately identified your income level. Consider including other sources of non-taxable income like Roth IRA distributions, tax-exempt interest from municipal bonds and the non-taxable portion of Social Security or pension payments as potential non-taxable sources; compare results to see which deduction makes more sense for you; if itemizing proves more suitable then ensure receipts can support claims made.
Capital Loss Carry Forward
Gold and silver are considered collectibles by the IRS, so any profit made from their sales will be taxed at a maximum rate of 28% – much higher than traditional investments like stocks or mutual funds that are held for more than one year, which typically incur taxes at 20%.
If you sell precious metals at a loss, that loss can be used against any capital gains in subsequent years. Claiming this amount varies depending on which tax form is being used; most include instructions for how to calculate and claim for it.
Understanding the tax ramifications associated with selling gold and silver coins is vital for any investor. Any sales must be reported to the IRS and maintained accurately to remain compliant with all relevant laws. Consult a tax professional if needed in order to stay compliant.
Reporting to the IRS
The IRS classifies precious metals such as gold as collectibles, like art and antiques. Therefore, any profits you earn through investing in precious metals like gold are taxed at a higher rate than conventional investments like stocks and bonds.
Losses you incur while owning precious metals should also be treated as capital losses and used to offset taxes due, or saved as loss carryforward for use during future sales transactions.
Federal laws mandate that precious metal dealers report cash payments of $10,000 or more they receive for selling precious metals, in order to monitor large commodity exchanges and prevent money laundering.
The types of bullion exempt from filing 1099-B forms depend on their specific product; however, most bar and round sales by customers fall within this exemption category; such products could include 1 oz Gold Maple Leaf Coins, 1 oz Gold Kruggerand Coins or any US coin made of 90% silver.