As we all know, we can’t escape death or taxes. Well, almost. Because when it comes to taxes, and specifically — how to sell gold without paying taxes — there are some options.
In a few cases, we can reduce them. In others, we can defer. And in one, we can avoid them entirely.
Unfortunately, the IRS doesn’t make it terribly easy to figure out what is what. But in this piece, we’ve tried to lay out the options for you.
Is It Possible to Sell Gold Coins Without Paying Taxes?
How much tax you’ll pay on the sale of your physical gold depends on two factors:
- How you buy it in the first place (i.e. personally, within a company, within a retirement plan.)
- How long you hold it.
Below we’ve outlined all the different scenarios. But in brief:
- The only way to legally and permanently avoid paying capital gains tax on gold profits is to buy them in a Roth IRA or a Roth 401(k) plan.
- You can defer paying capital gains tax on the profits of gold sales if you bought them within a traditional IRA up to the age where mandatory distributions kick in.
- You will pay the highest tax if you buy and flip your gold within a year.
- You can use structures to lower your tax rate, but not eliminate it.
- Compliance with tax reduction strategies can be complicated and expensive. Be sure to run a proper cost/benefits analysis before you take on any strategy.
Taxes Owed on Precious Metals Sold Through a US Person, Domestic or Foreign Structures
First off, you should know that the government taxes US citizens, permanent residents, and US-based corporations on their worldwide income.
This includes capital gains from selling precious metals, whether held domestically or internationally.
The tax rate depends on whether you own precious metals as bullion or as shares in an ETF. Except for scenario #6 (a special case), this article will focus on taxation around physical product only.
It also depends on whether you are buying precious metals as an individual, a domestic corporation, or a foreign corporation.
And it depends on the tax classification of the domestic or foreign corporation.
Scenario #1: Physical precious metals sold by a US citizen or permanent resident.
- Capital gains on physical precious metals held for one year or more are taxed at a top rate of 31.8%. The highest base rate is 28%. High earners may need to pay the net investment income tax (NIIT) of 3.8% on top of the 28% rate, resulting in an effective rate of 31.8%.
- Capital gains on physical precious metals held for less than one year are taxed as ordinary income. The top rate is 40.8%. The highest base rate is 37%. High earners may need to pay the 3.8% NIIT on top of the 37% rate, resulting in an effective rate of 40.8%.
Scenario #2: Physical precious metals sold by a domestic C corporation.
A corporation formed in a US state (domestic C corporation) that hasn’t elected to be taxed as an S corporation, is subject to tax on its worldwide income. This includes capital gains on the sale of physical precious metals. The tax rate is a flat 21%.
When a domestic C corporation’s profits are distributed to shareholders as dividends, the shareholders must pay tax on the payment. The top tax rate for these dividends is 23.8% (20% base rate plus 3.8% NIIT).
Scenario #3: Physical precious metals sold by a domestic S corporation, a domestic C corporation elected to be taxed as an S corporation, or a domestic LLC taxed as a disregarded entity or a partnership.
A corporation formed in a US state that has elected to be taxed as an S corporation is not taxed on its worldwide income. Instead, the S corporation’s shareholders are taxed on that income. The tax is in proportion to their respective shareholder interests in the S corporation.
Long-term capital gains on the sale of physical precious metals would be taxed at a top rate of 31.8%, the same as if they had sold it themselves.
The IRS taxes capital gains on physical precious metals held for less than one year as ordinary income. The top rate is 40.8%, also the same as if the shareholders had sold it themselves.
The same rules and rates apply to a domestic LLC that hasn’t elected to be taxed as a C corporation. This applies whether the LLC has a tax classification of a disregarded entity (single owner) or a partnership (more than one owner).
Scenario #4: Physical precious metals sold by a foreign corporation classified as a “controlled foreign corporation” (CFC).
A CFC is a foreign corporation in which more than 50% of the shares, by vote or by value, are owned by US shareholders.
To be considered a shareholder in a CFC, a US person must own 10% or more of the shares. A US person who owns shares in a foreign corporation that is not a CFC is not covered by these rules.
A CFC’s passive income is attributed to its shareholders. This income includes the capital gain from selling its physical precious metals.
The CFC divides the income based on each shareholder’s ownership percentage. The IRS gain is taxed as ordinary income at a top rate of 40.8%.
Scenario #5: Physical precious metals sold by a foreign corporation that has elected to be taxed as a foreign disregarded entity (one owner) or foreign partnership (two or more owners).
In this scenario, the US shareholders are taxed as if the foreign corporation doesn’t exist. The gains are divided according to each shareholder’s ownership percentage in the foreign corporation.
Therefore, US shareholders in a foreign disregarded entity or foreign partnership pay capital gains tax on the sale of precious metals. The top rate is 31.8%.
Scenario #6: Physical precious metals sold by a foreign corporation with a tax classification as a “passive foreign investment company” (PFIC).
Most non-US ETFs are in this category including those that hold precious metals.
Individual US shareholders are taxed at a top rate of 23.8% on the capital gains if the PFIC has “qualified electing fund” (QEF) status. This status is defined in the PFIC Information Statement these ETFs publish annually.
If the PFIC shares qualify for “mark to market” (M2M) taxation under the PFIC rules, capital gains are taxed as ordinary income at a top rate of 40.8%.
If the PFIC shares do not qualify for QEF or M2M treatment, capital gains are taxed at the highest marginal tax rate in effect for the year in which the gains were made (currently, 37%). Plus, there may be interest charges if the shares have been held for more than one year.
If a corporation formed in a US state (domestic C corporation) sells PFIC shares, the gains are taxed to the corporation at a flat 21% rate. When the corporation makes a dividend payment to its shareholders, the shareholder pays tax on the income at a top rate of 23.8%.
If a domestic corporation elects to be taxed as an S corporation, its capital gains from the sale of PFIC shares are attributed to the individual US shareholders as discussed above.
Scenario #7: Physical precious metals sold by a traditional IRA or 401(k) plan
The Tax Code prohibits IRAs and 401(k) plans from investing in “collectibles.” Many forms of precious metals are considered collectibles. However, certain forms are permitted. For gold, these include:
- American Gold Eagle bullion coins
- American Gold Eagle proof coins
- Canadian Gold Maple Leaf coins
- Austrian Gold Philharmonic coins
- Australian Kangaroo/Nugget coins
- Chinese Gold Panda coins
- American Gold Buffalo uncirculated coins (proofs not allowed)
- Gold bars and rounds produced by an approved refinery or national government mint, meeting minimum fineness requirements.
Furthermore, the trustee of a retirement plan must hold the gold, not the owner.
Any amount an IRA or 401(k) plan invests in a collectible is deemed a distribution. In the case of a traditional IRA or 401(k) plan, the distribution would be taxable at a top rate of 40.8%.
A traditional IRA or 401(k) that sells gold not considered a collectible will not be subject to tax on the gain. Tax is due only when the IRA or 401(k) makes a distribution and is payable at a top rate of 40.8%.
Gold IRA vs Physical Gold
Both a Gold IRA and physical gold involve owning physical metals. However, there are notable differences between the two: Each option has specific advantages and limitations. Here’s what you need to know before you decide: Gold IRA vs Physical Gold.
Scenario #8: Physical precious metals sold by a Roth IRA or 401(k) plan
Distributions from a Roth plan that has been in existence for at least five years and to an owner who is at least 59 ½ years old are tax-free.
Roth plans are subject to the same restrictions on investing in collectibles as traditional plans. If the owner of a Roth plan invests in collectibles, the amount invested is considered to be distributed. That distribution is tax-free if the plan has been in existence for at least five years and the owner is over 59 ½. Otherwise, the government taxes the distribution at a top rate of 40.8%.
Reporting Requirements
Gold held within the US does not have to be reported to any government authority. Gold stored internationally is not reportable so long as it is “personally held” (that is, you are the only person with access to the metal). An example would be gold that you hold in the safe deposit box of a foreign bank or private vault, in which you have direct access to the box.
If the metals are not held personally — through any sort of pooled account or investment account — then they may be reportable.
The aggregate value of any “bank, securities, or other financial accounts” that a US citizen or permanent resident holds outside the United States must be reported to the US Treasury if its value exceeds $10,000 (FinCEN Form 114, also known as the “foreign bank account report” or FBAR). You must also disclose the fact that you hold such an account or accounts annually on Schedule B of Form 1040.
Certain domestic entities and trusts holding such international accounts must also file Form 114 if the aggregate value of those accounts exceeds $10,000:
- A corporation in which a US person owns directly or indirectly more than 50% of the total value of shares of stock or more than 50% of the voting power of all shares of stock;
- A partnership (or entity taxed as a partnership) in which a US person owns directly or indirectly an interest in more than 50% of the partnership’s profits or an interest in more than 50% of the partnership capital;
- An entity that is disregarded for tax purposes;
- A trust of which a US person is the trust grantor and has an ownership interest in the trust for US federal tax purposes;
- A trust in which a US person has a greater than 50% present beneficial interest in the assets or income of the trust for the calendar year; or
- Any other entity in which a US person owns directly or indirectly more than 50% of the voting power, total value of equity interest or assets, or interest in profits.
A separate reporting obligation exists for “specified foreign financial assets” that exceed $50,000 on the last day of the year or $75,000 at any time during the year (IRS Form 8938). The threshold increases for US taxpayers residing overseas or married taxpayers filing jointly. You must file this form annually with your personal tax return.
Domestic LLCs, corporations, and partnerships meeting the $50,000 threshold in which US persons own 80% or more of the entity and at least 50% of the entity’s gross income or assets consist of “specified foreign financial assets” must also file Form 8938. As well, domestic trusts with one or more US beneficiaries which meet the $50,000 threshold must file the form.
You may also be required to file Form 8621 annually with your tax return if you own PFIC shares. For individual shareholders, the reporting threshold for all PFIC shares you own directly (in your own name) is $25,000. If you hold the PFIC shares indirectly (e.g. in a domestic entity taxed as a disregarded entity, partnership, or an S corporation), the reporting threshold is reduced to $5,000. The 50% or more shareholder of a domestic C corporation must also file Form 8621 if it holds PFIC shares that don’t qualify for QEF or M2M treatment.
But, you must report the gain or loss on your taxes when you sell your holdings. This is true no matter where or how you hold them.
Please reach out to us if you need help with this.
Can You Sell Gold Anonymously?
Many of our clients are concerned about privacy. And quite a few own private assets like gold. So this question comes up from time to time. To learn more, please see: Can you Sell Gold Anonymously?
How to Ship Gold Internationally
Shipping gold overseas from the US might sound straightforward. But it can be quite a process. If you’re thinking about it, here’s what you need to know: how to ship gold internationally.
Some Final Words About How to Sell Gold Without Paying Taxes
Since 1984, we’ve helped more than 15,000 customers and clients protect their wealth. For its proven record as a wealth preservation tool, gold has often been a part of that planning.
In this article, we’ve talked about ways to reduce (or even eliminate) taxes on the sale of those metals.
But the truth is, the best tax planning is done on the buy, not the sell. If you structure things properly as part of comprehensive wealth protection at the beginning, you have a better chance of reducing your tax bill at the end.
We can help with that. And it will cost you nothing to get started. Just book a free, no-obligation call with one of our Associates to see if a wealth protection plan is right for you.
