In the United States, the Internal Revenue Service (IRS) taxes the profits made from gold and other collectibles like silver as part of capital gains taxation.
Taxes on profits generated from gold or silver sales are payable. To reduce tax liability when selling these precious metals, invest them in another investment vehicle to offset them and minimize your tax burden when selling.
Taxes on Capital Gains
Selling precious metals requires reporting it on your income tax return as income, whether coins or jewelry. For instance, selling one gold bar valued at $1,000 requires filing Form 1099-B with the IRS.
Capital gains on these items can be taxed up to 28%, as opposed to the more typical 15% or 20% rate applied to most investments.
Some gold investors find the different tax rates can be disorienting, especially those without traditional brokerage accounts or an IRA.
Another way to reduce taxes owed is investing in physical gold through an exchange-traded fund (ETF). You can purchase and sell these ETFs like stocks, bonds, or mutual funds; however, if held more than a year they’re taxed at a higher rate than other investments such as stocks. Alternatively, investing in gold futures allows preferential tax treatment.
When selling gold, there are certain reporting requirements to keep in mind. One such form is Form 1099-B which serves to report proceeds paid out to individual sellers of precious metals.
Through Section 1031, it may also be possible for you to convert any capital gains from selling gold without incurring taxes.
If you sell gold at a profit and intend to reinvest those proceeds in other investments within 45 days after selling, your sale will be considered a taxable sale and tax will apply accordingly.
Precious metal dealers must file Form 1099-B when they earn more than $1,000 in profits from sales of U.S. 90% silver dimes, quarters and halves as well as 25 or more 1-ounce Gold Maple Leaf coins or Gold Krugerrand coins containing at least 1 kilogram (1 kg = 1,000 troy ounces). They also must file one when selling gold and silver bars and coins weighing 1 kilogram or 1,000 troy ounces each.
Taxes on Cash Payments
When selling gold for cash, there are various taxes you must pay when selling it for cash. One is capital gain tax while the other is sales tax.
Depending on how you acquired your gold, additional taxes may apply. For example, if you ordered bullion through mail purchase, federal and state sales taxes may need to be paid separately.
However, many forms of gold and silver are exempt from taxation; government-issued coins like American Silver Eagles and American Gold Eagles don’t attract this charge.
Other forms of payment, including personal checks, traveler’s checks and money orders are exempt from sale tax. Any cash payments exceeding $10,000 must be reported to the IRS in order to combat money laundering and other illegal activities.
Taxes on Investments
Gold can be an attractive investment option for investors looking to protect themselves against inflation and safeguard their savings, yet may also be taxed differently than other investments.
The Internal Revenue Service views physical gold (mainly coins and bars ) as a collectible similar to paintings or rare stamps; any gains realized from selling these items are subject to an extremely high 28% tax rate upon sale.
This tax rate is substantially higher than the 15% long-term capital gains tax rate that generally applies to most assets and taxpayers.
Therefore, investors with higher incomes may find it more effective to invest in gold via an IRA or brokerage account, as these typically offer lower costs and provide better after-tax returns than gold coins or futures ETFs.