As mentioned earlier, the sale of precious metal coins, cartridges and ingots can serve as an additional source of income for many customers. Therefore, in the eyes of the IRS, any benefit that a customer obtains by selling their precious metal assets is considered taxable and is therefore subject to a form of tax. As an investor, you should keep in mind that capital gains are taxed at a different rate, much lower, than labor income. This is called capital gains tax.
And since gold is an investment asset, when you sell your gold and make a profit, it's taxed as capital gains. However, depending on how you've held your gold, you'll have to pay taxes at the ordinary capital gains rate or at an overall rate of 28%. Long-term earnings on ingots are taxed at the ordinary income tax rate, up to a maximum rate of 28%. Short-term earnings on ingots, like other investments, are taxed as ordinary income.
An asset must be held for more than one year for gains or losses to be long-term. Gold exchange-traded funds (ETFs) offer an alternative to buying gold bars and are traded like stocks. The example assumes that the costs and fees of buying, owning and selling gold coins, gold mutual funds, and gold futures ETFs are the same. And when possible, hold your gold investments for at least one year before selling them to avoid higher income tax rates.
The shares of gold mining companies can be purchased individually, through fixed equity mutual funds or through ETFs. In the case of brokerage accounts, an investment in gold mutual funds is more likely to offer a higher after-tax return than gold coins or a gold futures ETF. Emma and Lucas's results, shown in Figure 3, indicate that the after-tax returns on investments in gold in a traditional IRA far exceed those of investments in gold in a brokerage account or in a Roth IRA. My recommended way to own gold is through exchange-traded funds (ETFs), because they are very liquid and have low costs.
While initially gold was not allowed in IRAs, the most common forms of investment in gold, with the exception of the Krugerrands (South African gold coins), can be purchased within an IRA. Roosevelt signed Executive Order 6102 in 1933, making it illegal to own more than a small amount of gold coins and ingots. An investment in gold bullion in 2004 would have generated an annualized return before taxes of more than 12% over the next ten years. These investments tend to move in relation to gold prices, but they are also influenced by production and borrowing costs.
Lucas' annualized after-tax return increases by more than two percentage points if you use a traditional IRA for your investment in gold mutual funds and more than three percentage points if you use a brokerage account if you use a traditional IRA for your investment in gold coins. Physical gold or silver holds are subject to a capital gains tax equal to their marginal tax rate, up to a maximum of 28%. If you invested in gold and sold it for profit, you're probably looking for ways to minimize your taxes. These pieces include, among others, gold coins with fractional denominations; American Eagle gold or silver coins; any piece of foreign currency that has not been explicitly mentioned in the IRS's list of reportable items, as well as U.S.
currencies that were created after the list was created in the 1980s.