Investing in gold can be a great way to diversify your portfolio and protect your wealth. But it's important to understand the tax implications of investing in gold, as they can vary depending on the type of investment you choose. Exchange-traded funds (ETFs) backed by precious metals such as gold and silver are treated as collectibles for tax purposes, meaning 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 that are taxed at 28%.
Individual investors and 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. 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. 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. 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.