However, the IRS considers physical quantities of metal to be a “collector's item”. For collectibles, such as coins, works of art and ingots, the standard tax rate is 28%. As a result, owning physical gold or owning funds that in turn own physical gold means you can pay a higher maximum capital gains rate of 28%. Therefore, it is important to understand the tax implications of gold investing before taking the plunge.
A Gold Investing Guide can help you navigate the complexities of investing in gold. For federal income tax purposes, gold is considered a collector's item, as are the works of art, stamps, or baseball cards you've been accumulating. What that means is that instead of a maximum long-term capital gains rate of 15% for most taxpayers (20% for high-income taxpayers), you'll pay a maximum long-term capital gains rate of 28%. And if you are subject to Net Investment Income Tax (NIIT), that rate increases by an additional 3.8%. This is the case not only for gold coins and ingots, but also for most ETFs (exchange-traded funds), which are taxed at a 28% tax.
Many investors, including financial advisors, have trouble owning these investments. They assume, incorrectly, that since gold ETFs trade like a stock, they will also be taxed like a stock, which is subject to a long-term capital gains rate of 15 or 20%. Investors often perceive the high costs of owning gold as profit margins and storage fees for physical gold, or management fees and trading costs of gold funds. In reality, taxes can represent a significant cost of 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 Physical Bullion Trusts) can offer more favorable tax treatment than comparable ETFs. Since trusts are headquartered in Canada and are classified as passive foreign investment companies (PFIC), non-corporate U.S. investors can opt for standard long-term capital gains rates by selling or reimbursing their units.
Again, these rates are 15% or 20%, depending on revenue, for units held for more than a year at the time of sale. While no investor likes to fill out additional tax forms, the tax savings of owning gold through one of Sprott's physical ingot trusts and participating in the annual elections can be worth it. For more information on Sprott physical ingot 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.
The ingot is a collector's item according to the tax code. That means you're not eligible for regular long-term capital gains treatment. On the other hand, earnings from ingots held for a longer time are taxed at a maximum tax rate of 28%. Earnings on ingots held for one year or less are taxed as ordinary income.
This fund buys several gold futures contracts that should have basically the same return as a gold index that the fund is trying to track, although there are anomalies in the futures markets that can cause deviations. However, when it comes to self-planned gold nuggets, I wouldn't worry about taxes until the gold has been sold. There are special rules about owning gold in an IRA or other retirement account, which I'll talk about in a future post. You can trade gold futures yourself or own an ETF that carries out the trades, such as the PowerShares DB Gold Fund (DGL).
Investors in gold are not going to have the same returns after taxes, and part of the reason is the different tax treatments of the ways of investing in gold. Gold and silver bars may attract unwanted attention or require special statements for monetary instruments, but a gold necklace is, well, just another gold necklace. .