Exchange-traded funds backed by precious metals such as gold and silver are treated as collectibles for tax purposes, according to accountants. That means they have a higher federal tax rate of 28% on long-term capital gains. This is the case not only for gold coins and bars, but also for most ETFs (exchange-traded funds) that are taxed at 28%. Many investors, including financial advisors, have trouble owning these investments.
They incorrectly assume that because the gold ETF is listed as a stock, they will also be taxed as a stock, which is subject to the long-term capital gains rate of 15% or 20%. Investors often perceive the high costs of owning gold as dealer margins and physical gold storage fees, or management fees and trading costs for gold funds. In reality, taxes can represent a significant cost in 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.
Individual Investors, Sprott's Physical Bullion Trusts May Offer More Favourable Tax Treatment Than Comparable ETFs. Because trusts are domiciled in Canada and classified as Passive Foreign Investment Companies (PFIC), U, S. Non-corporate investors are eligible for standard long-term capital gains rates on the sale or redemption of their shares. 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 filling out additional tax forms, the tax savings of owning gold through one of Sprott's physical bullion trusts and holding 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. While many marketable financial securities, such as stocks, mutual funds, and ETFs, are subject to short-term or long-term capital gains tax rates, the sale of physical precious metals is taxed slightly differently.
Physical holdings of gold or silver are subject to a capital gains tax equal to their marginal tax rate, up to a maximum of 28%. That means people in the 33%, 35% and 39.6% tax brackets only have to pay 28% for their physical sales of precious metals. Short-term gains on precious metals are taxed at ordinary income rates. The IRS taxes capital gains on gold in the same way it does on any other investment asset.
But if you have purchased physical gold, you probably owe a higher tax rate of 28% as a collector's item. Avoid investing in physical metal and you can minimize your capital gains taxes at the ordinary rate of long-term capital gains. And when possible, hold your gold investments for at least a year before selling them to avoid higher income tax rates. Long-term gains on bullion are taxed at their ordinary income tax rate, up to a maximum rate of 28%.
Short-term gains in bullion, like other investments, are taxed as ordinary income. An asset must be held for more than one year for any gain or loss to be long-term. The typical approach to investing in gold futures contracts is by buying gold futures ETFs or ETNs. Gold exchange-traded bonds (ETNs) are debt securities in which the rate of return is linked to an underlying gold index.
While secondary investments in gold, such as gold mining stocks, mutual funds, ETFs, or ETNs, may result in lower pre-tax returns, after-tax returns may be more attractive. Whether through a brokerage account or through a traditional Roth or IRA account, individuals can also invest in gold indirectly through a variety of funds, stocks of gold mining corporations, and other vehicles, including exchange-traded funds (ETFs) and exchange-traded bonds. For example, VanEck Merk Gold (OUNZ) holds gold bars and stores them in vaults, but allows investors to exchange their shares for bullion or bullion coins. And since gold is an investment asset, when you sell your gold and make a profit, it's taxed as capital gains.
Profit margins on gold bars are usually lower than on country-specific gold coins, but both are collectible for tax purposes. The ETF's tax treatment will depend on the amount of the fund that is invested in physical gold against any asset that is linked to the price of gold. Gold futures contracts are an agreement to buy or sell at a specific price, place and time, a standard quality and quantity of gold. The restriction aimed to reduce gold hoarding, which according to the gold monetary standard was believed to be stifling economic growth, and lasted more than 40 years before rising in 1975.Alternatively, a physical CEF of gold is a direct investment of gold, but it has the benefit of taxes at the rates of LTCG.
Gold exchange-traded funds (ETFs) offer an alternative to buying gold bars and trade like stocks. Gold is often taxed differently from other investments, and tax rules vary depending on which of the many different ways of investing in gold you choose. The annualized return after tax of gold coins is the lowest, about a percentage point lower than that of the gold mutual fund, which receives LTCG treatment. .