Friday, March 20, 2009

Paying Tax on Gold

In some countries, a sales tax is charged on the sale of investment-grade gold bullion. I think this is thoroughly rediculous, since investments are normally taxed upon liquidation, with the capital gains being the taxable income. In the USA and in the European Union, there is no sales tax on gold (but in Europe there is VAT tax on purchases of silver). I have heard reports that in some US states the state government tries to collect income tax on gold bullion coins such as the American Eagle, since coins are seen as more of a taxable "product" than bullion bars, but I haven't been able to confirm this. Basically, there is no sales tax on gold in the US. As is the case for silver in the US.

There is, however, a gold capital gains tax, just as their is for profits you take from selling anything else in the US. The rate of capital gains tax on stocks and typical securities is 15%. But, and this is a big but, in the US gold is taxed as a collectible. The rate of capital gains tax on collectibles is 28%! The government gouges us on gold. This does not apply only to collectible numismatic gold coins, this also applies to investment bullion coins as well as bars. It also applies to mutual funds and ETFs that purchase gold on your behalf, and also to gold futures.

The one way to get around this high rate of taxation is to invest in gold mining stocks. These are taxed at a rate of 15% of capital gains, because you are not investing directly in gold, but rather in the company that produces the gold. I'm no tax expert, but maybe those taxes are paid at the company level so they do affect the company profits and your returns, but basically you don't have to worry about it. You pay 15% of your gains.

One interesting thing to note, however, is that in the US there are no requirements for either the buyer or the seller of gold and silver to report the transaction to the government. The only reporting required is for cash transactions of more than $10,000. This applies to any purchase, and not just the purchase of precious metals. If you buy less than $10,000 worth of gold, or if you pay by some other means, then the government will not know that you have the gold. When you sell the gold, the dealer is only required to report the sale for some larger quantities of coins and bullion bars, and not at all for American Gold and Silver Eagles. I suppose this means that you could easily sell your gold without paying taxes on it, especially if you sold it abroad. But I won't recommend this, because who knows what the government really knows about what you do. They may have ways of watching your transactions even without official reporting.

Basically, when you buy physical gold there should be no sales tax, but there will be a tax on selling gold, of 28% of capital gains, that you are legally obligated to pay, as rediculous as it is to classify investment bullion as a "collectible". This is the basic information. But please look into detailed professional advice when determining how to pay taxes on your gold.

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