Precious metals must be reported to the IRS whenever sold for profit by dealers or customers, yet some fraudulent coin dealers and customers attempt to sidestep this requirement by making multiple small payments instead of one large one in order not to exceed the reporting threshold.
Such actions violate anti-money laundering regulations and could result in criminal charges for both the dealer and customer. It’s essential to understand the tax ramifications associated with gold and silver coin sales before engaging in such deals.
Capital Gains Tax
Gold dealers must report transactions to the IRS only when certain criteria have been met when selling coins and bars that meet specific parameters. Customer purchases of 100-ounce silver bars, 1-oz Krugerrands or American Gold Eagles trigger their dealer to send out 1099B forms for tax reporting purposes; when such cash transactions take place they must also file Form 8300 – an IRS reporting form covering cash transactions over $10,000 – when these occur.
The IRS treats gold bullion bars and coins as collectibles rather than investments, so their gains in value are taxed like baseball cards or art. Heirloom gold or gifts made to blood relatives are exempt from tax because these capital assets qualify for favorable long-term capital gain rates; however, investors still must pay taxes when selling for profit; with careful tax planning this tax liability may be reduced significantly.
Inheritance Tax
The IRS does not view gold as a special asset when it comes to taxation; instead, it treats it like any other investment property and thus taxes it according to local and personal income tax rates.
There is no legal way to avoid paying taxes when selling gold, so any claims from dealers that there is some hidden way out are red flags you should disregard. You may be able to postpone paying your taxes by investing the proceeds from a gold sale in similar investments instead.
Only in rare circumstances may gold be exempt from taxes; this usually only applies when inheriting from relatives, as inheritance can be considered capital gain and therefore subject to either short-term or long-term capital gains taxes. Even this exemption does not apply for coins and bars as the IRS treats these as collectibles rather than bullion.
State Taxes
Gold coins are considered capital assets by the IRS; any gain realized from selling it would be considered taxable income. If received as a gift from family or friends however, no tax is payable.
State sales taxes may apply when selling precious metals, depending on state law. This tax is calculated based on the difference between your selling price and cost basis of each coin (i.e. original purchase price plus any expenses you incurred to maintain it).
Some states also impose cash reporting limits, requiring bullion dealers to file IRS Form 8300 reports with cash transactions exceeding $10,000 in order to combat money laundering and other illicit activities. As a result, many dealers no longer accept large cash payments; alternatively, buyers could buy American Eagle coins instead which do not fall under these reporting limits.
Other Taxes
Prior to selling gold or other precious metals, there are a few key considerations you must keep in mind. First of all, any profits from their sales are subject to capital gains tax based on how long you owned the item and your income level.
The IRS considers gold to be a collectible investment similar to art or antiques, so it is taxed at a higher rate than traditional investments such as stocks and bonds. Furthermore, depending on where you reside, sales taxes may also apply.
Though many dealers claim there are ways around paying taxes, you must always report any sale of silver and other precious metals purchased with cash over $10k as required by IRS legislation to combat money laundering and illegal activities. Form 8300 also serves this purpose of reporting.
