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Are you a gold bug? Find the tax nuggets

by on
in Leaders & Managers,Management Training

You may think that it’s a good time to invest in gold or other precious metals for greater purchasing power and a hedge against inflation.

When you sell an investment in gold, the difference between the sales price and your basis is taxable as a capital gain or loss. If you’ve held the gold for more than a year, any gain is treated as a long-term gain.

Strategy: Invest in gold inside your retirement plan. As opposed to the maximum federal tax rate of 15% on most other long-term gains, the maximum tax rate on long-term gains from precious metals is 28%. By using retirement plan funds to invest in gold instead of personal funds, you can avoid a big tax hit on a sale.

Of course, due to the speculative nature of gold, you don’t want to go overboard. Balance out precious metal investments inside your plan with other traditional plan investments.

How do you invest in gold? Here are four common ways:

1. Gold bars or bullion: This is the most conservative method. Gold bars can be purchased in quantities as small as one gram, although many investors lean toward one-ounce bars. Be aware that other costs are connected with this type of investment such as broker commissions, insurance and storage fees. When you sell the bars, you may have to pay an assay charge for each bar.

2. Gold certificates: If you decide you want to buy gold on a regular basis, consider gold certificates. The initial investment may cost as little as $250; then you can make additional purchases of, say, $100 a month. Storage costs may run about 1% a year. Extra benefit: You don’t have to pay an assay charge when you sell gold certificates.

3. Gold coins: Several countries issue gold coins (e.g., the American Eagle and the Canadian Maple Leaf). Generally, the cost is the spot market for gold plus a small commission and minting fees. Note: Gold coins that are minted by the U.S. government or one of the states can be held by IRA accounts. This is an exception to the general rule that prohibits IRA investments in collectibles.

4. Gold stocks and mutual funds: Gold mining shares are traded on the stock market, so they’re subject to the same risks as other stock investments. Mutual funds that invest in gold generally aren’t as volatile as individual stocks. You can purchase shares the same as with any other mutual fund (through brokers or no-load funds). These mutual funds also offer diversification and professional management.

If you already own gold in your private stash that was purchased at a higher price than the current market rate, you can sell the gold and claim a capital loss. The loss offsets other capital gains plus up to $3,000 of ordinary income.

Tip: Swap precious metals in a like-kind exchange. There’s no current tax on the deal, but you may still claim a tax-loss for the difference. (The swap is actually a simultaneous sale and purchase.) This enables you to hoard some gold for the future.

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