Capital Gains on Precious Metals: How to Avoid Taxes When Selling Gold & Silver

No one likes to see the tax man coming for their hard-earned money, and that includes those who have invested in precious metals such as gold and silver. However, the IRS classifies gold and silver as collectibles, and the taxes that are levied on those are somewhat stricter and harsher than those placed on assets such as stocks and bonds. As such, you need to know what you can do to minimize your tax burden when selling your gold and silver. 

You can work on this by working to offset gains that you have had in other assets with losses that you might have sustained on your gold and silver purchases. However, if you have experienced gains with your gold and silver collection, then you will need an alternative way to reduce your tax burden, such as gifting the metals or leaving them as an inheritance in your will. 

Short-Term vs. Long-Term Capital Gains and Applicable Rates

The tax code states that any asset that you sell after having held it for a period of less than a year is to be taxed at a short-term capital gains rate. This differs from assets that you hold for longer than a year, as they are taxed at the long-term capital gains rate. Short-term capital gains are taxed at your regular income bracket level, which could be anywhere from 10% to 37% depending on which tax bracket you fall under. 

Detail IRS reporting forms (Form 1099-B)

One of the main tax reports that anyone dealing in precious metals needs to be aware of is Form 1099-B. This is the form that those who sell precious metals (or many other types of assets) must use to report those sales or exchanges. Both the seller of the asset and the IRS automatically get a copy of this form whenever the sale goes through. That allows for both sides to keep track of exactly what has happened with that sale. Keep your copies of this form handy because you will need them when you are ultimately filing your taxes.

Differentiate Between Bullion and Numismatic Coins for Tax Purposes

The IRS views bullion and numismatic coins very differently when it comes to how they are taxed, and you should know a bit about that if you plan to hold on to either of these types of coins at any point before you file your taxes again. A quick reminder that bullion coins are considered investments, while numismatic coins are considered collector's coins. 

Bullion coins are purchased primarily because of the metals that they are made out of (i.e. gold, silver, etc.). Meanwhile, numismatic coins are purchased because of their historical value, age, or rarity. Both types of coins have significance to those who purchase them, but they are taxed differently. 

The tax rate for bullion coins that are held for less than a year is the ordinary tax rate that one otherwise pays. However, those coins that are held for longer than a year are taxed at a rate of 28%. This is far higher than the capital gains rate for other assets, such as stocks or bonds. 

Numismatic coins are also taxed at a rate of 28% when they are held for longer than a year. However, keep in mind that these tax rates only come into play when the holder sells the coin. As such, collectors can typically avoid paying such rates for a significant period of time because they will likely hold on to their collectible coins for a long time rather than sell them. 

Contact Us Today

If you’re interested in exploring how investing in gold and silver can strengthen your portfolio, contact us today to learn more about your options and how American Federal can help you get started.

Disclaimer: Not Legal/Tax Advice, Consult a Professional

Everything that you read here is meant to be informational only. You should always consult with a professional for tax advice before making any transactions. Consider this carefully and speak with those who are in the know. That is the best way to ensure that the advice you receive is solid and actionable.  

Image Credit: VladKK // Shutterstock

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