Investing in gold and precious metals, as with most other assets of significant value, requires some bookkeeping. The hallmark of a smart and responsible investor is maintaining documentation and records to verify prices and associated transaction costs. This not only makes it easier to deduce cost basis (when buying) and profits (when selling,) but also provides a legitimate paper trail should the IRS come for a visit!
While you should certainly keep records for your own use, some paperwork is mandatory for state and federal taxes. Unsurprisingly, rules for reporting the purchase and sale of precious metals are not simple, but below is a basic overview about what you need to know about gold investment reporting and taxation.
Purchases over $10,000 worth of precious metals including gold, silver, platinum and palladium, must be recorded and reported to the IRS. This reporting needs to be done by the selling party, that is, the dealer or broker must directly report to the IRS.
As a buyer, you have some responsibilities as well, such as filling out the IRS form for a precious metals purchase. Make sure you fill out the IRS 8300 tax form accurately to avoid the hassle of an audit. Tax implications of buying gold are discussed in more detail in the article titled “Buying Gold.”
More information on Form 8300 here can be found here: http://www.irs.gov/pub/irs-pdf/f8300.pdf
When selling gold, the reporting requirements may seem quite complicated. This is because there are different rules for different types of physical gold. Profit from selling gold is reported on Form 1099-B. The following is an overview of reporting requirements when selling gold; for a more detailed discussion, check out the article titled “Selling Gold.”
Bullion coins minted by national governments generally do not have to be reported, regardless of quantity. When it comes to private mints, coins, rounds and mints must be reported, although there are rules that govern the quantities for each type of precious metal. For gold, any transaction involving 25oz or more must be reported.
To make matters more confusing, some gold coins minted by national governments are not exempt from reporting and count towards the 25 ounce limit, including Gold Canadian Maple Leafs, Gold South African Krugerrands and Mexican Onzas. In addition, some popular gold bars, such as those from Credit Suisse, the Perth Mint and Engelhard must be counted towards the same limit.
More information on Form 1099-B can be found here http://www.irs.gov/pub/irs-pdf/i1099b_11.pdf
Only capital gains are taxed, not the entire proceeds. For example, if you bought gold for $4,000 and sold it for $5,000, you would only be taxed on your profit (capital gains) of $1,000. The rate depends on the whether you held the investment for one year or longer.
If you held your gold for one year or less, it is considered ordinary income and will be taxed accordingly. If on the other hand you held your investment for more than a year, the profit will be taxed at the lesser of 28% or your marginal tax rate.
Sales tax can apply to precious metal transactions, and laws vary from region to region, so always check your local regulations to ensure you are in compliance. Some county and even city governments tax bullion, coins and even paper money on top of state and federal taxes so it’s always a good idea to contact a local precious metal or numismatic dealer who is knowledgeable about local laws.
Most small bullion transactions don’t require any extra paperwork, so don’t get worked up about taxes for individual purchases. Like buying a car or a house, it is always a good idea to talk to a professional before making a big investment. Always consult a trusted financial expert before entering a new investment market.