Gold Trading Tax Rules – Many investors prefer to own physical gold and silver rather than exchange-traded funds (ETFs) that invest in these precious metals. Although the tax implications of owning and selling ETFs are very simple, not many people fully understand the tax implications of owning and selling physical gold. Below is a description of how these investments are taxed, as well as tax reporting requirements, cost-based calculations and ways to offset any tax liability on the sale of physical gold or silver.
Physical holdings of precious metals such as gold, silver, platinum, palladium and titanium are considered by the Internal Revenue Service (IRS) to be capital assets specially classified as collectibles. Conditions in these metals, regardless of their form, such as gold coins, bars, rare coins or bullion, are subject to capital gains tax. Capital gains tax is payable only after the sale of such properties and if the properties are held for more than one year.
Gold Trading Tax Rules
While many marketable financial securities, such as stocks, mutual funds and ETFs, are subject to short- or long-term capital gains tax rates, sales of physical precious metals are taxed a little differently. Physical holdings of gold or silver are subject to capital gains tax equal to your marginal tax rate, up to a maximum of 28%. This means that individuals in the 33%, 35% and 39.6% tax brackets only have to pay 28% on their sales of physical precious metals. Short-term gains on precious metals are taxed at ordinary income rates.
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Tax obligations on the sale of precious metals are not due at the time of sale. Instead, the sale of physical gold or silver must be reported on Schedule D of your Form 1040 tax return. Depending on the type of metal you sell, a Form 1099-B must be filed with the IRS at the time of the sale, as such sales are considered income. Items requiring such storage include $1,000 face value of 90% US silver pennies, quarters or half dollars, and 25 or more 1-ounce gold maple leaf coins, gold Krugerrands, or Mexican gold ounces. Gold and silver bars of 1 kilogram or 1,000 troy ounces also require storage. Sales of American Gold Eagle coins do not require the filing of a Form 1099-B. The tax bill for all such sales is due at the same time as your regular income tax bill.
The amount of tax due on the sale of precious metals depends on the cost basis of the metals. If you buy the metals yourself, your cost basis will be equal to the amount you paid for the metal. The IRS allows you to add certain expenses to your basis, which can reduce your tax liability in the future. You can add some items, such as the cost of appraisals.
There are two separate scenarios for calculating the cost basis of physical gold or silver. First, if you receive the metals as a gift, the base price is equal to the market value of the metals on the date the donor purchased them. If at the time of the gift the market value of the metals is less than what the person who gave them to you paid, your cost basis will be equal to the market value on the day you receive the gift. As for the second special scenario, if you inherit gold or silver, your cost basis will be equal to the market value on the date of death of the person from whom you inherited the metals.
For example, let’s say you buy 100 ounces of physical gold today at $1,330 an ounce. Two years later, you sell all your gold holdings for $1,500 an ounce. You are in the 39.6% tax bracket. The following scenario occurs:
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Capital losses on other collectibles can be used to offset the tax liability. For example, if you sell silver at a loss of $500, you can net these amounts and owe only $4,260. Or you can save $500 as a loss carryforward for the future.
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Tax Implications and Reporting Requirements for Bullion Transactions For many of our clients, investing in precious metals serves as a passive form of income that allows them to generate profits simply by selling or trading their bullion. However, as with any other source of income, passive or otherwise, clients should be aware of the tax implications associated with their transactions. According to IRS policies, there are two circumstances in which bullion dealers are legally required to report transactions: when a customer sells large quantities of specific gold pieces and when they pay $10,000 or more in cash. Failure to do so risks fines, criminal charges, and even the possibility of jail time for both the bullion dealer and the buyer. When reporting any of the transactions mentioned above, there are specific forms that bullion dealers are required to complete. These include the 1099-B and 8300 respectively. Please note that while JM Bullion is required to provide certain information to our customers, such details remain strictly confidential between us and the IRS; third parties will not have access to their private information at any time. Form 1099-B The 1099 series is a set of forms used to report any profit made by non-company sellers. They allow the IRS to prevent any cases of tax evasion by tracking people who may be selling items as a source of income. In the context of precious metals transactions, dealers are required to file Form 1099-B when a customer sells them any of the products mentioned in the IRS list of reportable items based on predetermined reportable quantities. Reporting criteria vary depending on the specific coin or gold piece being sold. Customer reporting criteria for the sale of bars and rounds is primarily determined by the purity and quantity of individual products. However, this criterion differs for each type of precious metal. For the sale of gold bars and rounds to be considered reportable, each individual piece of bullion must have a fineness of at least 0.995 and the total quantity purchased must be 1 kilo (32.15 troy ounces) or more. Similarly, for sales of silver bars and rounds to warrant reporting, each piece of silver must possess a fineness of at least .999 with a total purchase quantity of 1,000 troy ounces or more. Finally, sales of palladium and platinum bars or rounds require minimum qualifying quantities of 100 troy ounces and 25 troy ounces, respectively. The fineness limit for both metals is .9995. Compared to bars and circles, the criteria for reporting customer coin sales is a little simpler because the limits are very specific. There are only a few coins eligible for reporting. These coins include 1-ounce Maple Leaf gold coins, 1-ounce Krugerrand gold coins, 1-ounce Mexican Onca gold coins, and any US coin made of 90% silver. We are required by law to report any sale of US 90% silver coins that exceed a face value of $1,000, as well as any sale of the previously mentioned gold coins of which more than 25 pieces have been sold. Of course, there are a number of bullion products that are exempt from reporting requirements, regardless of the quantities sold by the buyer. Such pieces include, but are not limited to, fractional denomination gold coins; Gold or Silver American Eagle Coins; any foreign currency not specifically named on the IRS reportable item list, as well as parts of US currency created after the list was created in the 1980s. Form 8300 Under federal tax laws, bullion dealers are not only required to report certain sales from their customers, but are also subject to
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