Taxes on Gold Full Guide & Tips on Reducing Taxes On Gold Investments

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Like any other asset, there are taxes on gold and other implications of owning and selling gold either in physical form through bullion or by buying and selling ETFs, stocks or gold mutual funds.

Now, some investors do prefer to own physical gold over digital gold securities but the tax implications for the physical asset can be more confusing to investors than buying and selling gold stocks.

In this article below we will go over how these investments are taxes, as well as their tax-reporting requirements, cost basis calculations and ways to lower tax liabilities form the sale of physical gold bullion.

Tax implications on Gold Bullion

Physical holdings in precious metals like gold are considered by the IRS (Internal Revenue Service) to be capital assets specifically classified as collectibles.

Holdings in these metals, regardless of their form be it in coins, bullion bars or ingots are subject to capital gains tax.

The capital gains tax is only owed after you sell your holdings and if the holdings were held for more than one year.

Physical gold holdings are subject to a capital gains tax equal to your marginal tax rate, meaning there is a cap of 28%. This means that individuals in the 3%, 35% and 39.6% tax bracket only have to pay 28% on their physical gold sales.

However you rmust know that , short-term gains on precious metals are taxed at ordinary income rates.

TIP: Try to hold your physical gold for at least a year before selling it for capital gains in order to not be taxed at ordinary income rates.

Taxes on Gold Stocks

If you decide to purchase gold with stocks or mutual funds the maximum tax rate is 20%. These are the capital gains taxes for 2022:

Tax-filing status0% tax rate15% tax rate20% tax rate
Single$0 to $41,675.$41,676 to $459,750.$459,751 or more.
Married, filing jointly$0 to $83,350.$83,351 to $517,200.$517,201 or more.
Married, filing separately$0 to $41,675.$41,676 to $258,600.$258,601 or more.
Head of household$0 to $55,800.$55,801 to $488,500.$488,501 or more.

The main thing you have to keep in mind is when buying digital gold is that gold ETFs are taxed differently than stocks.

Gold-backed ETFs face a 28% capital gains tax rate cap and short-term capital gains are taxed at your regular income much like buying and selling physical gold.

Reporting Requirements

Tax liabilities on the sale of gold are not due the instant that the sale is made. Instead, sales of physical gold need to be reported on Schedule D of form 1040 on your tax return.

Depending on the type of metal you are selling, form 1099-B must be submitted to the IRS at the time of the sale, as such sales are considered income.

Gold items that require filling such form are the following:

  • 25 or more than 1-ounce Gold Maple leaf
  • Gold Krugerrang
  • Gold Mexican Onza Coins
  • Gold 1kg bars

The only gold coins that don’t NOT require filling form 1099-B are American Gold Eagle coins.

Always keep in mind that the tax bill for all of these sales is due at the same time that your ordinary income tax bill is due.

Cost Basis of Physical Gold

The amount of taxes on gold owed on the sale of your gold bullion depends on the cost basis of the metal itself. If you purchase the metal yourself then the cost basis is equal to the amount paid for the metal.

The IRS allows you to add certain costs to the basis, which can reduce your tax liability in the future.

Keep in mind that certain items, such as the cost of appraisals can be added into the cost basis you can lower the amount of tax owed.

There are two scenarios for calculating the cost basis of physical gold. These scenarios are:

  • Receiving the metal as a gift
  • Inheriting the gold

Taxes for receiving Gold as a gift

For the first scenario, if you receive the gold as a gift then the cost basis is equal to the market value of the metals on the date that the gifter purchased them.

If at the time of gifting the gold the market value of the metal is less than what the person giving it to you paid, then the cost basis will be equal to the market value on the day you receive the gift.

Taxes for inheriting gold

For the second scenario, if you inherit the gold then the cost basis will be equal to the market value on the date of death of the person from whom you inherited the gold.

Example of tax on Gold and offset possibilities

As an example, assume you purchase 100 ounces of physical gold today at $1,330 per ounce. Two years later, you sell all your gold holdings for $1,500 per ounce. You are in the 39.6% tax bracket. Then the following scenario occurs:

Cost basis = (100 x $1,330) = $133,000

Sale proceeds = (100 x $1,550) = $150,000

Capital gains = $150,000 – $133,000 = $17,000

Tax due = 28% (maximum percentage) x $17,000 = $4,760

Get help paying your taxes

Paying your taxes especially when It comes to capital gains and other investment taxes can sometimes be difficult, so here are some apps to help you easily calculate and automatically pay your taxes correctly and on time:

GET STARTED  Federal: $24.95 to $64.95. Free version available for simple returns only. State: $29.95 to $44.95. All filers get access to Xpert Assist for free until April 7. Promotion: Montknoll users get 25% off federal and state filing costs.
GET STARTED  Federal: $39 to $119. Free version available for simple returns only. State: $49 per state. TurboTax Live packages offer review with a tax expert. Promotion: Montknoll users can save up to $15 on TurboTax.
GET STARTED  Federal: $29.99 to $84.99. Free version available for simple returns only. State: $36.99 per state. Online Assist add-on gets you on-demand tax help.

Lower your capital gains taxes on gold

If you want to lower your tax the way to do so is by increasing your cost bases, basically offsetting tax liability.

For example: IF you sell silver at a $500 loss, then you net these amounts and only owe $4,260. Or you can save the $500 as a loss carry forward for the future.

Another way to increase your cost basis is to include the premium you pay on the gold and add in storage costs.

Use a 1031 Exchange

A 1031 exchange could offset more flexibility, it allows you to differ the tax bill on a capital gains so long as you re-invest those profits in another investment asset.

To do this, you have to meet these 3 criteria:

  • Make the new investment within 45 days of selling the old one.
  • It must be a similarly situated investment
  • You need to have an intermediary hold the money

So generally, if you make a new investment within 45 days in a similarly situated investment meaning for example, you buy more gold or other precious metal commodities and you hold your money in your brokerage account and not allow it to touch your bank account then you can use a 1031 exchange.

Basically, the idea is to let you roll one investment into another without owing taxes in the process.

This can be very useful to investors who want to use their profits on their gold investments to make other similar investments.

However, if you are looking to liquidate your gold for cash, this strategy won’t help you.

We have written more extensive articles on how to convert your gold to cash as well as buying gold with cash, you can check it out here if you need help along the process.

Bottom line

Always keep in mind that there are obligations for investors who want to buy and sell either physical or digital gold. It is important to correctly calculate and pay your due taxes to mitigate the risk of infractions by the IRS or your respective country’s Tax System.

We hope this article helped you, for more information on investing in gold and other precious metals, commodities, and jewelry we kindly ask you consider visiting our home page.

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