Gold investors in the United States will not owe taxes on any price appreciation while they hold on to gold, but when they sell off their investments they must pay federal capital gains tax on all profits, defined as the sale price of their gold minus their cost basis. In addition, taxpayers in certain states may owe taxes on gold profits if their state taxes capital gains. Investors usually pay a heavier tax burden at the federal level on gold-related investments as compared to other types of investments.
Types of Gold Investments
The IRS establishes a higher tax rate for certain types of gold investments considered collectibles, including physical gold bars and coins, gold held in an Exchange Traded Fund (ETF) and certificates representing gold held in a vault. To take advantage of at a lower long-term capital gains tax rate, investors can choose to invest in gold indirectly by purchasing shares in a mining company.
Investors will pay a 28 percent tax on all collectible gold investments when they sell them at a profit, regardless of how long they hold on to them. Those who buy shares in a gold mining company will pay either a short-term capital gains tax rate at their regular income tax rate on shares held less than a year or a long-term capital gains tax of 0 or 15 percent on shares held a year or longer, as of the 2011 tax year.
Gold dealers do not have to file a 1099 form with the IRS if an investor sells physical gold to them, but they must report all sales over $10,000 to the IRS. All electronic gold transactions result in an investor’s broker filing a 1099 form of their profits or losses with the IRS. Regardless of whether a transaction is reported, investors must report all profits from the sale of gold or they will face civil and possibly criminal penalties for tax evasion.
Investors can report their profits from gold investments on IRS Form 1040, Schedule D, and report their short and long-term capital gains on Parts I and II. They will then have to fill out Part III, paying special attention to line 18 if they had gains from the sale of collectibles. The IRS provides a worksheet for Schedule D so that investors can calculate their tax rate from collectibles and another worksheet that determines how much profit they will report on Form 1040, line 44.
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