First, you can postpone your tax bill with a 1031 exchange. This means that you reinvest money from your gold sale by buying more gold and, if you meet the IRS requirements, all of these transactions will not be taxed. You only pay taxes when you sell your gold in cash, not when you buy more gold with that money. A key to successfully investing in gold is to minimize taxes on your profits.
Gold is often taxed differently than other investments, and tax rules vary depending on which of the many different ways of investing in gold you choose. Ingots are a collector's item according to the tax code. That means you are not eligible for regular treatment of long-term capital gains. In contrast, bullion gains that hold longer in a year are taxed at a maximum tax rate of 28%.
Gains held in bullion for one year or less are taxed as revenue. However, tax evasion is perfectly legal. And precious metal investors can use a legal method to avoid paying sales tax on their purchases of precious metals. The best way to avoid this is to invest in funds and assets that don't buy physical gold.
A particularly good approach is to look for ETFs and mutual funds that specify this approach in their investments. Assets such as futures contracts and options are not considered investments in physical assets, so the IRS treats them as ordinary capital gains with a maximum rate of 20%. Keep in mind that the price of gold is constantly changing, so the remaining gold coins could be worth less (or more) in another financial year. This includes coins and bars measuring 1 kilogram or 1000 troy ounces in weight respectively, along with any gold or silver item that has more than 50% pure gold or silver content.
For example, VanEck Merk Gold (OUNZ) owns gold bars and stores them in vaults, but allows investors to exchange their shares for bullion or bullion coins. In other words, gold coins are taxable based on their total value, rather than just weighing how much gold they are made of. And since gold is an investment asset, when you sell your gold and make a profit, it's taxed as capital gains. This fund buys a series of gold futures contracts that should have essentially the same performance as a gold index that the fund is trying to track, although there are anomalies in futures markets that can cause deviations.
You can trade gold futures yourself or own an ETF that conducts the trades, such as the PowerShares DB Gold Fund (DGL).
