The Biggest Misconception:
What’s the Tax Rate on Silver and Gold Bullion?
Well, it’s that time of year again. While many of you may have filed your taxes weeks ago, others are sifting through piles of forms, trade confirmations and receipts to makes sure you have everything accounted for on that 1040. The last thing you need is uncertainty about your obligations under IRS codes for the reporting of gains or losses on any physical gold or silver bullion you own. This article will help you weave through the complexities of the rules and regulations, and help you figure out the solution best for you.
**Disclaimer: I am not a tax professional. The information here is for the purpose of learning more about how the rules work and give some general examples of how different actions you may have taken throughout the year affect your individual tax situation. Remember, tax issues are often very specific to your individual situation…so as necessary, reach out to a professional for help.First, let’s go through some of the scenarios that you may have experienced during the previous tax year to help you find which plan of action is best for you. Toward the end of this article, we’ll address a HUGE misconception regarding the tax implications of reporting your gold or silver.
- ”I purchased silver and gold last year, but I did not sell any of it.”
- “I took delivery of some gold and silver bullion that I have accumulated over the past several years.”
- “I sold all or part of my precious metal holdings last year.”
1. ”I purchased silver and gold last year, but I did not sell any of it.”I still get questions about the tax implications of accumulating metal without selling. The easy answer is there are none. After you buy silver or gold there are no gains or losses until they are sold. You have no obligation because you have no gain or loss. Although it is beyond the scope of this article, there could be some good reasons to pass this type of savings on to your heirs.
2. “I took delivery of some gold and silver bullion that I have accumulated over the past several years.”As long as you had physical possession and did not sell it before the end of the tax year, this is not a realized gain or loss either, so there are no tax obligations. Many people keep gold and silver as a long-term store of value, and tax implications are deferred to a later time or passed along via inheritance. Estate planners who have a proper understanding of the treatment of precious metals can provide a great deal of expertise in this area.
3. “I sold all or part of my precious metal holdings last year.”Whether you sold an exchange-traded fund (ETF), allocated holdings or physical metal you had on hand during the tax year, you are individually responsible for the reporting of any gains or losses you may have had. In some cases you may have received a 1099. The 1099 makes it easy, but limits your options in terms of the way your cost basis is calculated.
Most of the time average cost is the default method and can be the easiest to obtain and keep track of on your own. To make certain you or your tax professional are able to calculate cost basis in the most accurate manner, it is important to keep records of all of your bullion purchases. This can be in the form of invoices, trade confirmations or account activity (for allocated accumulation accounts like Karatbars).
Once you know what you paid for the metal you have sold, you can figure out what your gain or loss is and report it appropriately. In the USA, precious metals are currently taxed as a collectable at a
“maximum rate of 28%”. We will talk directly about this shortly, but as mentioned
there is a misconception about what this means. The maximum rate of 28% would be more accurately phrased, “the maximum the tax rate can be is 28%”.
Topic 409 – Capital Gains and Losses (irs.gov)As you know, one thing to consider is whether the gain is short term or long term…
Short term gains are capital gains that occur when holding an investment less than a year. In this case, precious metals are treated just like stocks and other investments.
Short term gains are taxed as ordinary income.
Long term gains are capital gains that occur when holding an investment for a year or longer. Like short term gains, long term precious metal gains are also taxed at regular income rates but have a 28% cap. In order for the effective rate to be 28% for a long term gain/loss, however, you would need to be in the 28% or higher tax bracket:
28% Tax Brackets (2013)$146,400 – $223,050 (Married Filing Jointly)
$87,860 – $183,250 (Single)
The Big MisconceptionSo, in summary, all precious metals transactions are taxed as ordinary income with the exception of long-term gains/losses once the 28% bracket is reached. In that case, they are capped at that 28% rate.
This ultimately means that although precious metals are taxed higher than long-term capital gains in most instances vs. stocks and some other investments, they are not taxed as heavily as many believe. It’s extremely important to note the distinction between the 28% rate being the maximum and not the fixed rate.
Here are a few more resources (IRS forms and instructions) related to reporting sales of ‘capital assets’:
Form 8949 |
InstructionsSchedule D |
InstructionsThe tax implications are just one thing to consider when buying physical gold and silver bullion. This article hopefully helps you get started as you research the accumulation of gold and silver.
**Disclaimer #2: These materials do not, and are not intended to, constitute legal or tax advice. You should consult an attorney or tax advisor for individual advice regarding your own situation. Although I have made considerable efforts to be thorough in this article, I offer no assurance that the information posted here is timely, accurate, complete or applicable to any particular set of facts. This article is not posted for commercial use and should not be relied upon for decision purposes.
Feel free to post any other areas of tax interest, readers might be interested in.
