Use a 1031 exchange First, you can postpone your tax bill with a 1031 exchange. This means that you reinvest the money from your gold sale by buying more gold and, if you meet the IRS requirements, all of these transactions will not be taxed. The best way to avoid this is to invest in funds and assets that don't buy physical gold. A particularly good approach is to look for ETFs and mutual funds that specify this approach in their investments.
Assets such as futures contracts and options are not considered investments in physical assets, so the IRS treats them as ordinary capital gains with a maximum rate of 20%. The IRS taxes capital gains on gold in the same way it does on any other investment asset. But if you have purchased physical gold, you probably 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 ordinary rate of long-term capital gains.
And when possible, hold your gold investments for at least a year before selling them to avoid higher income tax rates. Sell any form of precious metal at a profit and the profit will be taxed at a federal rate of 28% or less. Sell any form of precious metal at a loss and it will be used to offset any capital gains you have. Tax avoidance, however, is perfectly legal.
And precious metals investors can use a legal method to avoid paying sales tax on their purchases of precious metals. How can you buy and sell gold without paying taxes? You can trade an unlimited amount of gold and not pay the tax when you use the self-directed Roth retirement account. Or, you can postpone gold taxes with IRS exchange 1031.Bullion is collectible under the tax code. That means you are not eligible for regular long-term capital gains treatment.
In contrast, bullion earnings held for more than one year are taxed at a maximum tax rate of 28%. Bullion earnings held for one year or less are taxed as ordinary income. The after-tax returns of gold held as a long-term investment depend, among other things, on whether profits are subject to long-term tax treatment on capital gains or whether they are subject to a higher maximum collectibles rate. Here's why it's important to check with your certified public accountant about taxes on your gold investments.
Comparisons of hypothetical taxpayers generally indicate a significantly higher after-tax refund rate for any form of gold held in a traditional IRA than in a brokerage account and slightly higher than in a Roth IRA. You'll be able to avoid 6%, 7%, or even 8% sales tax on top of the cost of precious metals if you choose to store your metal in non-taxable jurisdictions. Alternatively, a physical gold CEF is a direct investment in gold, but it has the benefit of taxes at LTCG rates. She earns more than 3.2 percentage points of annual after-tax return by using a traditional IRA instead of a brokerage account for her investment in gold mutual funds and more than 4.2 percentage points of annual after-tax return for her investment in gold coins.
While many marketable financial securities, such as stocks, mutual funds, and ETFs, are subject to short-term or long-term capital gains tax rates, the sale of physical precious metals is taxed slightly differently. If you are trying to make a profit from selling gold in the United States, you must inform the tax authority about your income. If you invested in gold and sold it for a profit, you're probably looking for ways to minimize your taxes. And since gold is an investment asset, when you sell your gold and make a profit, it's taxed as capital gains.
The 3.8% net investment income tax can be applied to gold earnings from the brokerage account for taxpayers with higher MAGI than in these examples. However, the total costs of owning gold vary widely between investment types and reduce after-tax returns. That means people in the 33%, 35% and 39.6% tax brackets only have to pay 28% for their physical sales of precious metals. For brokerage accounts, a gold mutual fund investment is more likely to provide a higher after-tax return than gold coins or a gold futures ETF.
There are a variety of options that precious metal owners can use to legally avoid sales tax and pay the lowest premiums for storing the metal in their wallet. . .