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When someone begins their journey into gold investing, it often seems like all blue skies ahead. They hold a physical investment that stores value and sometimes quickly turns a profit. Unfortunately, many people don’t realize that they may have to pay taxes on gold.
The tax rules for gold and other precious metals are complex. People often get excited about their first purchase without knowing these rules. Are there taxes for buying gold? Are taxes owed immediately upon a sale? What if you sell gold at a loss?
These are all important questions, and their answers apply to many other precious metals. This is why every bullion investor should know whether they have to pay taxes on gold. Understanding these rules and their complexities can help your investments earn more money.
Do I Have to Pay Taxes on Gold?
The simple answer to whether selling gold creates tax liabilities is yes. There are certainly many nuances to this rule, but when you sell bullion, you will have to worry about tax issues. The most important thing to remember, however, is that this only applies after you sell gold.
If you’re in the market to buy American Gold Eagles or other bullion types, you don’t need to worry about taxes yet. In fact, you’ll never owe a penny on this investment if you don’t sell it. This makes bullion a big appeal for those who own gold for fear of a societal collapse occurring.
Additionally, you will only owe taxes on gold if you sell it for a profit. Regardless of whether you earn or lose money on a sale, you should report it to the IRS. In fact, when you sell to bullion dealers, there are certain instances where your information will always get reported.
These situations include:
- Selling 32.15 troy ounces or more of gold bars or rounds
- Selling 25 troy ounces or more of Maple Gold Leafs
- Selling 25 troy ounces or more of gold Mexican Onza coins
- Selling 25 troy ounces or more of gold Krugerrands
Bullion dealers must report these sales on Form 1099-B. Sales of coins not directly mentioned in the tax law — such as American Gold Eagles — are exempt from this reporting. This does not mean you’re exempt from taxes on gold. It simply means the dealer doesn’t have to report the sale.
If you do have to pay taxes on a profit, the IRS treats gold as a collectible. This means you face a maximum long-term capital gain tax rate of 28% if you held the bullion for at least a year. If you’re not in the 28% tax bracket, though, you’ll only be taxed at your current bracket.
This means if you fall into the 35% tax bracket, the IRS will still only tax your profits at 28%. For short-term capital gains — meaning you owned gold for less than a year — the IRS will use your tax bracket to determine the taxes on gold you owe. This could be as little as 0% depending on income.
Gold Tax Exceptions
If you’re looking for ways to completely avoid paying taxes on bullion, you’re out of luck. Of course, there are some exceptions to every rule. The biggest complaint many people have regarding taxes on gold profits is that they’re treated as collectibles.
Fortunately, not all gold or precious metals you own will fall into this category. The IRS lists three situations where your investment will not qualify as a collectible:
- Certain gold coins listed in IRC Section 408(m)(3)(A)
- Gold coins issued under the statutes of any state — something that’s occurring more frequently
- Any gold that meets purity standards and is physically held by a bank or another approved trustee
Most people who earn a profit will have to pay taxes on gold, but the chance exists that you may qualify to owe less. If your bullion doesn’t meet the IRS definition of “collectible,” more tax-beneficial rules may apply.
It’s ideal to speak with a professional tax preparer to see if your investments fall into these categories. Even if they don’t, the pros can provide tips that may help you reduce your tax liability.
Calculations for Paying Taxes on Gold
The rules regarding owed taxes when selling gold certainly look complex on paper. Once you understand them, though, they’re fairly straightforward. In fact, calculating what you’ll owe might be the easiest thing you do during tax season.
Since you only pay taxes on profits, you can easily calculate what you’ll owe with your cost basis and sales price. Your cost basis is what you initially paid for the bullion, and there are nuances to this that we’ll discuss later. For now, a simple example will make it clear how you’ll pay taxes on gold.
Imagine for a moment that you bought five ounces of bullion when the gold price was $1,429 in July 2019. Now imagine you sold it just over one year later — making it a long-term capital gain — when the price hit $2,029 in August 2020. The following equation would apply:
- Cost basis = (5 x $1,429) = $7,145
- Sale proceeds = (5 x $2,029) = $10,145
- Capital gains = $10,145 – $7,145 = $3,000
- Tax due = 28% (maximum) x $3,000 = $840
Based on this calculation, you’d owe $840 on your profit. Of course, there are many issues that can affect this. These variables can include anything from the type of gold you buy to how you received it. The biggest issue that can affect what you owe, though, is capital losses.
For instance, you would end up owing less on your gold profits if you also lost money on silver. This is one of the various methods that can lower your liabilities when paying taxes on gold. In the next section, we’ll discuss this and several other strategies that can help.
Saving Money When You Pay Taxes on Gold
While it certainly isn’t exciting to pay taxes, there are certain rules meant to protect you. This is why you can use losses to offset gains when you sell bullion. Looking at the above example where $840 was owed, you’d only owe $300 if you sold other precious metals at a $540 loss.
There are also a few other things you should know about that might save you money:
Cost Basis Nuances
The cost basis of your bullion is usually whatever you pay for it. If you received the metal as a gift, however, the cost basis will be the market value when the gifter bought it. This means if they paid above spot price — which is common these days — your basis remains the market value.
There are also nuances to paying taxes on gold items that were inherited. Your cost basis will depend on the market value of the bullion on the day the previous owner died. This means it won’t matter what they paid for the gold, and it won’t matter if current premiums are very high.
Additions to Cost Basis
If you buy $5,000 worth of gold, you might immediately think your cost basis is $5,000. If you sell that gold later for $6,000, you’ll owe taxes on a $1,000 profit. Fortunately, you can also add other costs to this basis.
Did you have an appraisal performed on the bullion before purchasing it? You can add this to the cost basis! This means a $100 appraisal will raise your cost basis to $5,100, so the taxes on gold you face will drop down to $900 instead of $1,000.
There are other ways to add to your cost basis, but your unique situation is the most important factor. This is why speaking with a tax professional is ideal.
Do I Have to Pay Taxes on Gold ETFs?
When people learn about the taxes they may have to pay on bullion, many consider opting for gold exchange-traded funds (ETFs) instead. These offer the benefit of investing in gold without having to physically store it. Of course, the potential tax benefits are what stand out to most.
The idea here is that ETFs are taxed as securities, and this means you could pay as little as 0% on long-term capital gains. Unfortunately, many people fail to realize that not all of these funds are the same. In fact, your liabilities for these ETFs may be the same as paying taxes on gold bullion.
There are three categories of gold ETFs you should know about:
- Physical-backed ETFs: These funds are backed by bullion, so you’re getting the true value of gold. Unfortunately, they’re generally taxed just like collectibles. This means no tax savings for you.
- Closed-end funds: These ETFs do not allow fund managers to increase shares to meet investor demand. This means it’s structured as a trust — just like physical-backed ETFs — and taxable as a collectible.
- Tracking funds: ETFs that track the price of gold — such as through mutual fund and stock investments — receive treatment as securities. This means you may get tax benefits from such an investment.
If your goal is to save money when paying taxes on gold, ETFs that track the price of gold seem like your best bet. Unfortunately, there are several disadvantages to this. The most important is that your investment isn’t actually in gold.
For instance, an ETF tracking gold mining companies can see price fluctuations unrelated to gold. Maybe a scandal erupted in the company, or maybe severe flooding has interrupted production. In either scenario, you can lose money even if gold’s price is rising.
The biggest issue with any ETF, however, is that you’re not getting real gold. Even if a fund tracks the spot price perfectly, you won’t have access to physical bullion if you need it. This is a huge deterrent for many investors.
Buy Gold Bullion Today
While the rules regarding taxes on gold are complex, this is true for anything you might invest in. That’s why you shouldn’t let this dissuade you from buying gold bullion. The precious metal has served as a store of value for thousands of years, and that’s not going to change any time soon.
The biggest concern many people have, however, relates to taxes when they buy gold. Fortunately, there’s nothing to worry about. You don’t have to concern yourself with any tax requirements until you actually sell your items. If you haven’t sold bullion, the IRS doesn’t care!
At Silver Gold Bull, we want each of our clients to be informed investors. While it’s no fun to pay taxes on gold, it doesn’t mean you can’t secure impressive profits. The first step in this endeavor is purchasing metals at a great price. Visit our Gold Bullion page to get started today.