This is the case not only for gold coins and bars, but also for most ETFs (exchange-traded funds) that pay a 28% tax. Many investors, including financial advisors, have trouble owning these investments. They incorrectly assume that because the gold ETF is trading as a stock, it will also be taxed as a share, which is subject to the long-term capital gain rate of 15% or 20%. Investors often perceive the high costs of owning gold as the trader's profit margins and storage fees for physical gold, or the management fees and trading costs of gold funds.
In reality, taxes can represent a significant cost to the possession of 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. Because trusts are domiciled in Canada and are classified as Passive Foreign Investment Companies (PFICS), non-corporate investors in the United States are eligible for standard long-term capital gain rates for the sale or redemption of their holdings.
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 to fill out additional tax forms, the tax savings of owning gold through one of Sprott's Physical Bullion Trusts and making the annual elections can be worthwhile. To learn more about the 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.
The IRS taxes capital gains on gold the same way it taxes any other investment asset. But if you've bought physical gold, you'll likely owe a higher tax rate of 28% as a collector's item. Avoid investing in physical metal and you can minimize your capital gains taxes at the regular rate of long-term capital gains. And when possible, keep your gold investments for at least a year before selling to avoid higher tax rates.
The IRS classifies precious metals, including gold, as collectibles, such as art and antiques. This applies to gold coins and bars, although their value depends solely on the metal content and not on rarity or artistic merit. You pay taxes on the sale of gold only if you make a profit. However, a long-term gain on collectibles is subject to a 28 percent tax rate, rather than the 15 percent rate that applies to most investments.
Long-term gains on bullion are taxed at your ordinary income tax rate, up to a maximum rate of 28%. Short-term gains from bullion, like other investments, are taxed as ordinary income. An asset must be held for more than one year for gains or losses to be long-term. If you invested in gold and sold it for profit, you're probably looking for ways to minimize your taxes.