There’s no question that gold has grown in appeal for individuals trying to protect their assets free from the grip of traditional financial institutions. If you recently purchased physical gold, you’re probably questioning the tax liabilities of having this precious metal.
Although gold is a consistent source of wealth, it’s crucial to know how taxes fit into your overall selling strategy.
Specifically, we need to look into capital gains tax and clarify how it relates to your physical gold resources, including what you need to know about Gold IRAs.
How Does Capital Gains Tax Affect Gold?
When you sell physical gold for profit, capital gains tax applies. The calculation of this tax depends on the difference between the price you paid for the gold and the price you sold it for.
Physical gold is classified by the Internal Revenue Service (IRS) as a collectible, which influences its taxation. Gold, among other collectibles, is taxed differently than other forms of assets.
The IRS wants you to disclose the sale of your gold and pay capital gains tax on any profit. The length of time you have had the gold before selling determines your owed amount. Let’s talk specifics:
Short-Term vs. Long-Term Capital Gains
In the realm of capital gains tax, gold sales fall into two categories: short-term & long-term. The two differ mostly in the length of time you kept the gold before selling.
If you have owned the gold for less than one year, short-term gains apply. In this instance, any sales profit will be subject to regular income taxes. Your current income tax bracket determines the tax rate, and it can vary from as low as 10% to as high as 37%.
However, if you have owned the gold for more than one year, long-term gains apply. The IRS rates long-term profits on gold higher than those of most other types of securities.
Whether your income level is low or high, the maximum tax rate on capital gains for items like gold is 28%. You might pay less than the 28% threshold, though, if your income falls into a lower tax rate.
How Do Gold IRAs Factor into the Equation?
If you are thinking about including gold in your retirement plan, a Gold IRA provides a means to obtain gold and some tax benefits.
As a self-directed individual retirement account (IRA), a Gold IRA lets you include real gold and other precious metals into your retirement portfolio. This is not the case with conventional IRAs, which usually feature stocks and bonds.
The tax laws vary somewhat when you add gold to a Gold IRA. The main advantage is that any increases in gold stored inside an IRA are tax-deferred. You won’t pay capital gains tax on the gold until you start drawing from your IRA. These distributions in a conventional IRA are taxed as regular income, which helps gradually distribute the tax load.
Establishing a Gold IRA is simple with American Hartford Gold. We assist you through the gold acquisition process and sell the gold you will put in your IRA.
What Kind of Records Do You Need To Keep?
Buying and selling gold calls for rigorous documentation. To figure your taxable gain, you will need to know the precise amount you paid for the gold when the time comes to sell. This includes any expenses connected with the acquisition, like dealer premiums or storage costs.
Among these records should be:
- Receipts for the acquisition cost of the gold.
- Acquisition and sale dates.
- Related records and sales prices.
When you file your taxes, the IRS will require this data, especially if you are declaring capital gains from gold transactions. Maintaining detailed records guarantees that you can fairly document any taxable income and deductions — including those for expenses linked to gold storage.
Are You Required To Report Gold Sales to the IRS?
Yes, you need to report the sale of any physical gold to the IRS. You will do this by providing the details from your Form 1040 tax return included on Schedule D.
Under some circumstances, you could also have to record capital gains and losses on transactions involving specific assets, including actual gold, using a Form 1099-B.
Here’s a brief summary:
- If you sell more than 25 gold coins — such as the Gold Maple Leaf or Gold Krugerrand — you must turn in Form 1099-B.
- In the same vein, you must complete the form if you sell gold bars weighing more than one kilogram.
Not all gold sales call for Form 1099-B, however, so make sure you are in compliance by speaking with a tax advisor or reviewing IRS rules.
Is It Possible To Offset Capital Gains from Gold?
You can indeed offset capital gains from gold with capital losses from other acquisitions. If you sell gold at a profit but lose money on another asset, like real estate or other collectibles, you can utilize the loss to lower the taxable gain on the gold sale. Your tax bill could be less as a result.
Should your losses surpass your profits, you could additionally deduct other income with up to $3,000 of the excess loss. If you still have losses, you can advance them to later years.
How Do You Know the Cost Basis?
The cost basis of your gold determines the level of capital gains tax due. The cost basis is basically what you paid for the gold plus any further fees related to obtaining or keeping it. This might cover insurance, storage fees, or perhaps appraisal expenses.
If you inherited or got the gold as a gift, the cost basis will vary. The cost basis for gifts often is the price the original owner paid for the gold. Usually, the fair market value of the gold at the time of death of the former owner determines the cost basis for inherited gold.
Are You Ready to Acquire Gold?
A Gold IRA is a smart way to manage your gold assets. At American Hartford Gold, we make it easy to buy gold and secure your financial future. Get in touch with us today to discuss your options.
Sources:
Topic no. 409, Capital gains and losses | Internal Revenue Service
Self-Directed IRA (SDIRA): Rules, Investments, and FAQs | Investopedia
About Form 1099-B, Proceeds from Broker and Barter Exchange Transactions | Internal Revenue Service
