Investing in gold can be a great way to diversify your portfolio and protect your wealth. But before you jump into the gold market, it's important to understand the tax implications of investing in gold. This article will explain the different types of taxes associated with gold investments, as well as strategies for minimizing your tax burden. When it comes to taxes, there are two main types of gold investments: physical gold and exchange-traded funds (ETFs).
Physical gold, such as coins and bars, is subject to a 28% tax. ETFs that invest in gold are subject to the long-term capital gain rate of 15% or 20%. In addition to the taxes associated with physical gold and ETFs, investors should also be aware of the costs associated with owning gold. These costs include trader's profit margins, storage fees for physical gold, management fees and trading costs of gold funds.
These costs can add up quickly and 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 can invest in Sprott Physical Bullion Trusts, which are domiciled in Canada and classified as Passive Foreign Investment Companies (PFICS). Non-corporate investors are eligible for standard long-term capital gain rates on the sale or redemption of their holdings. These rates are 15% or 20%, depending on revenue, for units held for more than one year at time of sale. Another way to minimize capital gains taxes on gold is to invest in a physical gold closed-end fund (CEF).
A CEF is a direct investment in gold, but has the benefit of long-term capital gain rate taxes. Additionally, certain types of gold investments are allowed in IRAs, such as Krugerrands (South African gold coins). The annualized after-tax return of gold coins is the lowest, about one percentage point lower than that of the gold mutual fund. It's important to note that while the law may say that you can sell gold and silver without paying taxes, that doesn't mean it translates into practice with the IRS. Therefore, you would have to keep gold for more than a year to be able to pay taxes at favorable long-term capital gain rates when you sell. Finally, it's important to consult with your certified public accountant about taxes on your gold investments.
They can help you determine which strategies will work best for minimizing your tax burden.