Tax obligations for the sale of precious metals do not expire at the time the sale takes place. Instead, sales of IRA physical Gold or silver must be reported on Schedule D of Form 1040 of your tax return. This is the case not only for gold coins and ingots, but also for most ETFs (exchange-traded funds), which are subject to taxes of 28%. Many investors, including financial advisors, have trouble owning these investments. They assume, incorrectly, that since the gold ETF is traded like a stock, it will also be taxed as a stock, which is subject to a long-term capital gains rate of 15 or 20%.
Investors often perceive the high costs of owning gold as profit margins and storage fees for physical gold, or management fees and trading costs of gold funds. In reality, taxes can represent a significant cost of owning gold and other precious metals. Fortunately, there is a relatively easy way to minimize the tax implications of owning gold and other precious metals. For individual investors, Sprott Physical Bullion Trusts may offer more favorable tax treatment than comparable ETFs.
Because trusts are based in Canada and are classified as passive foreign investment companies (PFIC), U.S. non-corporate investors are entitled to standard long-term capital gains rates for the sale or reimbursement of their units. 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 holding gold through one of the Sprott Physical Bullion Trusts and participating in the annual elections can be worthwhile.
To learn more about 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. If you owned the gold coins for a year or less, you'll declare it in Annex D as a short-term gain, and any holding period longer than one year will be declared a long-term gain. If collecting coins is one of your hobbies, meaning that you purchase gold coins for leisure and not investment purposes, or if the sale is an ordinary transaction in your business, all profits are taxed as ordinary income, not as capital gains.
These pieces include, among others, gold coins with fractional denominations; American Eagle gold or silver coins; any piece of foreign currency that has not been explicitly mentioned in the IRS's list of reportable items, as well as pieces in U.S. currency that were created after the creation of the list in the 1980s. Reportable sales (again, customer sales to dealers) apply to 1-ounce Gold Maple Leafs, 1-ounce Krugerrands, and 1-ounce Mexican Ounces in quantities of twenty-five or more in one transaction.