How to Sell Gold With Fewer Taxes

There is no (legal) way to sell gold without paying taxes.

However, we can help you avoid giving Uncle Sam more than his fair share.


How Is Physical Gold Taxed?

Many investors buy gold and silver to hedge against the volatility of other investment options. Despite their relative security, taxes on gold and silver can be tricky. Precious metals are recognized as capital assets and collectibles, and the taxes applied to owning and selling them differ from other assets, such as exchange-traded funds (ETFs). The profits from selling precious physical metals, such as bullion coins and bars, are taxed as capital gains. Capital gains tax is owed if gold and silver are sold or held for more than a year.


Tax Implications of Selling Physical Gold or Silver

Many tradable financial securities incur short and long-term capital gains tax. However, physical metals are taxed slightly differently. Physical holdings of precious metals incur a capital gains tax equal to your marginal tax rate, with a maximum of 28%. For example, individuals with a marginal tax rate between 33% and 39.6% pay 28% in taxes on the sale of their precious metals. On the other hand, short-term profits on precious metals are taxed at regular income rates.

Example:

Let’s say you purchase 100 ounces of physical gold at $2,000 per ounce. Then three years later, you decide to sell your physical gold holdings at $2,500 per ounce. If you are in the 33% bracket, you must pay 28% of the profit in capital gains tax. This is the breakdown:

Cost basis = (100 x $2,000) = $200,000
Sale proceeds = (100 x $2,500) = $250,000
Capital gains = $250,000 – $200,000 = $50,000
Tax due = 28% (maximum percentage) x $50,000 = $14,000

If you incur losses during the sale of precious metals, you will still be required to pay taxes.


How To Sell Gold Without Paying Taxes

There is no way to avoid paying taxes on the sale of your gold. Nevertheless, you can check whether your profits are income or capital gains

Taxes on buying and selling gold depend on short or long-term gains. Investors who make short-term profits on precious metals are considered retail dealers. As such, retail dealers incur income tax. However, longer-term profits incur capital gain tax according to your marginal tax rate. Still, a self-directed Roth retirement account may offer an alternative to paying these taxes.

Selling Gold with Self-Directed Roth Retirement Plans Without Paying Taxes

While 401(k) plans are usually used for bonds and stocks, you can also use these retirement accounts to invest in gold. However, ensure that you are not in possession of the physical gold. Instead, it will need to be put on hold in a self-directed IRA account.

Just like with traditional Roth 401(k)s, the value of assets in the gold Roth account increases without any taxation incurred. In other words, your assets in the Roth account will not be subject to taxes.

To avoid excessive taxes on the sale of gold, consider setting up a self-directed Roth account. However, ensure that the gold is held on your behalf. When selling the gold, employ the services of an administrator. The administrator can complete the transaction for you with your specified price and details.

Keep in mind that if you are dealing with physical gold, you will need a third party to hold it for you.

Tips Of Selling Gold with Self-Directed Accounts

There are several considerations to make when working with a self-directed account.

  • You cannot lend money to yourself, your relatives, or your dependents.
  • The gold in IRA must be pure, such as Maple Leaf Gold.
  • The IRS has the right to prohibit your transactions if they feel that you are attempting to avoid taxes. Additionally, the IRS can also deactivate your account and charge snowballing taxes and penalties.

Deferring Gold Taxes

The reality is that you cannot avoid paying taxes, but there are ways to postpone them.

If you employ the 1031 IRS exchange, the money you make from selling gold can be reinvested. This means that you will not have to pay large amounts of tax at once.

It may make sense to reinvest the profits from selling gold into more gold. The IRS does not impose any taxes on activities such as these. Taxes are employed when you cash in the gold profits.


Reporting Requirements

There are a few tips and tricks to keep in mind when dealing with gold reporting requirements.

Tax liabilities when selling precious metals such as gold are not due when the sale is concluded. Instead, you can report those sales on Schedule D of the 1040 form on your tax return.

However, the 1099-B form must be submitted to the IRS at the time of the sale, depending on the type of sale. Some types of sales can be considered income, including:

  • $1,000 face value of U.S. 90% silver dimes, quarters, or half dollars.
  • Twenty-five or more 1-ounce Gold Maple Leaf, Gold Krugerrand, or Gold Mexican Onza coins.
  • Gold bars and silver bars that are 1 kilogram or 1,000 troy ounces.

On the other hand, selling American Gold Eagle coins does not require a 1099-B form.


Final Thoughts

While taxes are always something to be wary about when investing, that should not be your only factor in making investment decisions.

Owning precious metals, such as gold and silver, are a viable investment decision because they are one of the few assets that may maintain a steady price through economic fluctuations.

Tradable financial securities incur short and long-term capital gains tax. However, physical metals are taxed a bit differently, with a maximum tax rate of 28%. Short-term profits on precious metals are taxed at regular income rates.

Keeping your portfolio diversified is key to generating and maximizing profits. And doing so by purchasing and selling precious metals, such as gold, is the perfect way to keep things flowing. Providing your portfolio with that protection can be more important than what your tax liability might be.

Posted on December 21, 2021 by James Miller

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