Let's look at three common strategies investors use to minimize capital gains taxes on gold. A financial advisor could help you optimize your investments to minimize your tax liability. Keep your investments for at least one year. The IRS doesn't treat gold as a special asset class.
This means that no specific rules apply to gold when it comes to capital gains taxes. If you want to minimize your tax bill, the best way to do this is through smart general tax planning. First, you can postpone your tax bill with a 1031 exchange. This means that you reinvest the money from your gold sale by buying more gold and, if you meet the IRS requirements, all of these transactions will not be taxed.
You only pay taxes when you sell your gold in cash, not when you buy more gold with the money. While many marketable financial securities, such as stocks, mutual funds, and ETFs, are subject to short-term or long-term capital gains tax rates, the sale of physical precious metals is taxed slightly differently. Physical holdings of gold or silver are subject to a capital gains tax equal to their marginal tax rate, up to a maximum of 28%. That means people in the 33%, 35% and 39.6% tax brackets only have to pay 28% for their physical sales of precious metals.
Short-term gains on precious metals are taxed at ordinary income rates. This is the case not only for gold coins and bars, but also for most ETFs (exchange-traded funds) that are taxed at 28%. Many investors, including financial advisors, have trouble owning these investments. They incorrectly assume that because the gold ETF is listed as a stock, it will also be taxed as a stock, which is subject to the long-term capital gains rate of 15% or 20%.
Investors often perceive the high costs of owning gold as dealer margins and physical gold storage fees, or management fees and trading costs for gold funds. In reality, taxes can represent a significant cost in owning gold and other precious metals. Fortunately, there is a relatively easy way to minimize the tax implications of owning gold and other precious metals. Individual Investors, Sprott's Physical Bullion Trusts May Offer More Favourable Tax Treatment Than Comparable ETFs.
Because trusts are domiciled in Canada and classified as Passive Foreign Investment Companies (PFIC), U, S. Non-corporate investors are eligible for standard long-term capital gains rates on the sale or redemption of their shares. Again, these rates are 15% or 20%, depending on revenue, for units held for more than one year at the time of sale. While no investor likes filling out additional tax forms, the tax savings of owning gold through one of Sprott's physical bullion trusts and holding the annual elections can be worthwhile.
To learn more about Sprott Physical Bullion Trusts, ask your financial advisor or Sprott representative for more information. Royal Bank Plaza, South Tower 200 Bay Street Suite 2600 Toronto, Ontario M5J 2J1 Canada. Bullion is collectible under the tax code. That means you are not eligible for regular long-term capital gains treatment.
In contrast, bullion earnings held for more than one year are taxed at a maximum tax rate of 28%. Bullion earnings held for one year or less are taxed as ordinary income. The best way to avoid this is to invest in funds and assets that don't buy physical gold. A particularly good approach is to look for ETFs and mutual funds that specify this approach in their investments.
Assets such as futures contracts and options are not considered investments in physical assets, so the IRS treats them as ordinary capital gains with a maximum rate of 20%. And since gold is an investment asset, when you sell your gold and make a profit, it's taxed as capital gains. Gold is often taxed differently from other investments, and tax rules vary depending on which of the many different ways of investing in gold you choose. In other words, gold coins are taxable based on their total value, rather than just weighing the amount of gold they are made of.