Shares of gold-based assets, such as gold mining stocks and mutual funds, are typically taxed at a maximum tax rate of 20% (15% for specific moderate-income investors).
People frequently look toward alternative investments, such as gold and other precious metals, when stock prices start to decline, as they did in late September. Gold has historically been thought of as a good “hedge” against stocks, but it has its own set of pitfalls. Notably, the gold market is even more volatile than the stock market, so this is not an investment for the faint of heart.
If you are still drawn to the glimmer of gold, think about the various techniques of investing as well as the tax implications. Here are some possibilities:
1. Physical gold: You can buy gold bars or bullion if you want to hold your gold in your hands or even bury it in a “secret place.” However, this typically includes costs such as broker commissions, insurance, and storage fees. You might be required to pay an assay fee when you sell gold bars.
2. Gold certificates: If you intend to purchase gold frequently, buying gold certificates may be less complicated and expensive than buying actual gold. Although you must still pay storage fees for the gold, you do not have to pay an assay fee when you sell certificates.
3. Gold ETFs: In essence, a gold exchange-traded fund (ETF) works like a mutual fund and typically tracks an index or reflects the fluctuating price of gold. Brokers can help you buy and sell gold ETF shares. This method provides more liquidity than other methods.
4. Gold mining stocks and funds are subject to the same risks as other stock investments because they are traded on the stock market. However, gold mutual funds are not as volatile as individual stocks. Shares can be purchased in the same manner as other mutual funds.
5. Gold coins: Collectors might find this option more appealing. For example, several countries issue collectible coins, such as the American Eagle and the Canadian Maple Leaf. In general, the cost is the spot price of gold plus a small commission and minting fee.
Note that collectibles such as gold coins are generally not permitted in an IRA, but there is an exception for American Eagle and Canadian Maple Leaf coins.
What are the tax implications? There is no current income tax due on a gold investment while it is held. As an alternative, when you sell your real gold or stock, you make a profit or loss. However, gold collectibles (such as coins) are taxed at a maximum rate of 28%. Remember this crucial distinction.
Ultimately, before you invest, be sure you are aware of all the financial and tax repercussions. Consult with a professional for advice.
The tax laws are very complex. Our short blog articles cannot cover in full all the nuances of the rules. Your specific facts may hold various opportunities and possible risks that only trained, experienced, and highly qualified tax specialists can spot. We encourage you to find such help, rather than trying to figure it all out on your own. Consider giving this marketplace a try by posting your project and signing up here.
If you are a licensed tax professional and are interested in helping others either part or full-time, or ad hoc, come on in! Happy to have you. Our marketplace has the full suite of tools to communicate with clients including compliance calendars, task and message management, and billing. You can also quickly connect to knowledgeable colleagues who can complement your services with the ones you do not provide. Register here
