Every year the Internal Revenue Service incorporates new tax laws, codes, and regulations that can seem a little arcane to the average person. Some of them are so arcane that they can only be understood by experts in the field.
Precious metals are no exception to this trend, as they are subject to taxation in the United States as well as many other countries around the world. This brings about questions about how much pay taxes are paid on precious metals and how much are capital gains taxes?
How Are Precious Metals Taxed?
You need to keep in mind that there can be taxes assessed when you buy or your sell gold and most other precious metals. There are similar taxes associated with a wide range of semi-precious metals.
When it comes to precious metals the United States does not have any Goods Services Tax or a Value Added Tax national tax when it comes to purchasing precious metals. Yet on the purchase of precious metals, the United States does allow state sales taxes to apply. This means that each of the 50 States has a different tax policy when it comes to purchasing precious metals.
While some states charge sales tax, there are somewhere sales tax is completely exempt on the purchase of precious metals. There is also a small number of states which exempt the sales tax only if the purchase of precious metals reaches a certain amount.
For some entities, this can affect the strategy with which they sell precious metals, as well as the general amount that they are more willing to sell. So, it’s a good idea to do your homework when it comes to where you are selling or buying precious metals.
States That Currently Collect Sales Tax On Gold Are:
- New Hampshire
- New Jersey
- New Mexico
- North Carolina
- West Virginia
- Washington D.C.
States Where Gold Is Exempt From Sales Tax Are:
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
The states that put stipulations on precious metal taxes based on amount are:
- California $1,500
- Connecticut $1,000
- Florida $500
- Louisiana $1,000
- Maryland $1,000
- Massachusetts $1,000
- New York $1,000
- Texas $1,000
Bear in mind that these amounts are subject to change with the whims of each state’s legislative cycles.
What Are Capital Gains Taxes?
A capital asset is generally considered to be anything you own for personal use as well as for an investment purpose. This could be something like your house, furniture, furnishings, stocks, and even precious metals.
When a capital asset is sold for a net profit, it is seen as a type of income known as a capital gain. This also means that you will have to pay federal on it. In the case of gold, and precious metal ETFs that are held outside of individual retirement accounts, they are considered to be collectibles in the same vein as pieces of art, fine wine, or vehicles and can have a capital gains taxes assessed on them.
What Is The Difference Between Long Term And Short Term Capital Gains
The length of time investment is held for will influence whether it is treated as a long-term or a short-term capital gain. If the gains are produced from the same of physical precious metal bullion, high-value collectibles, in less than 12 months, then it is considered a short-term capital gain. Any gains that are made from an investment that was held for longer than 12 months is considered a long-term capital gain.
A short-term capital gain is taxed just like ordinary income at the same tax rate. However, most long-term capital gains are capped at a maximum 20% tax rate. In some cases, collectibles can be assessed with a tax rate up to a maximum of 28%. This means that if you hold a precious metal are for more than a full calendar year, the gains from it can be a maximum of 28%!
Most versions of investment-grade gold and other precious metals fall under the collectible category. This includes things like numismatic coins, as well as precious metal bullion coins, precious metal bars, and wafers, as well as things like commemorative coins, precious metal rounds, and certificates. In some categories, this also applies to Gold ETFs.
What Are The Different Types Of Gold ETF?
For all intents and purposes, there are three different types of exchange-traded funds, also known as ETFs.
An ETFs that is specifically backed by physical gold bullion such as a Gold ETF is structured as a grantor trust. This means that the IRS treats them as collectibles.
Gold Exchange Trade Notes are essentially a debt instrument. This means that their rate of return is tied directly to a gold index. As far as the IRS is concerned, they are taxed as either short-term or long-term capital gains.
A Closed-End Funds is also considered to be a trust and is thus treated as collectible, for capital gains purposes.
Are There Any Exceptions To How Gold Collectibles Are Taxed?
The IRS has very few exceptions when it comes to what is considered a collectible and how it is taxed. Theoretically, an IRA can have up to one, to one-half, one-quarter, or one-tenth of an ounce of gold coins, or it can have up to one ounce of silver coins that were minted by the United States Treasury Department.
The IRS specifically requires that all IRA plans which include Gold IRAs to be held in the possession of a third-party trustee or custodian. They do not treat it as if the gold is being held by the owner of the IRA.
Withdrawals from a gold IRA can only be done after the person has reached the minimum 59.5 years of age. Any earlier than that and it is assessed with a 10% early withdrawal penalty.