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Mine the best tax breaks for investing in gold

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in Leaders & Managers,Management Training

Are you a gold bug? You may think the time is right to invest in gold or other precious metals (such as silver) as a hedge against inflation or for greater purchasing power. Of course, the price of gold has been known to fluctuate widely, so you need to pay close attention to the ups and downs.

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

Strategy: Invest in gold inside your retirement plan. Unlike the maximum federal tax rate of 15 percent on most other long-term gains, the maximum tax rate on long-term gains from precious metals is 28 percent.

By using retirement plan funds to invest in gold, instead of your 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.

4 ways to invest

Although there are several ways to invest in gold, here are four most common methods for investors:

1. Gold bars or bullion. This is the most conservative path. Gold bars can be purchased in quantities as small as one gram, although many investors lean toward one-ounce gold 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 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 percent 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). In general, the cost is the spot market for gold, plus a small commission and minting fees. Note: You can hold gold coins that are minted by the U.S. federal government or one of the states in your IRA accounts. That's an exception to the general rule that prohibits IRA investments in collectibles.

4. Gold stocks and mutual funds. Gold mining stocks are traded on the stock market, so they're subject to the same risks as other stock investments. Mutual funds that invest in gold aren't as volatile as individual stocks. You can purchase shares the same way as 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 you bought at a higher price than the current market rate, you can sell the gold and claim a capital loss. You can use the loss to offset other capital gains, plus up to $3,000 of ordinary income (or $1,500 if you use married-filing-separate status).

Online resources:

Gold investments





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