Perhaps the best way to avoid taxes on gold sales is to realize that sales aren’t taxable. Instead, it is net capital gain that is taxed at the end of each year. You could sell gold for a profit of $100,000 this year and owe no tax at all—as long as you have more than $100,000 of losses as an offset.
Each year, when you prepare your federal income tax return, you tally all your transactions from the previous year. First, you put them into categories: short-term gain taxed up to 39.6%; long-term gain taxed no more than 20%; and long-term gain on collectibles (such as gold bullion or bullion funds) taxed at rates up to 28%. You then determine whether you have net gain or net loss in each category. If you have net gain in each category, you’ll owe tax on your net long-term gain at 15% or 20%; on your net long-term collectibles gain at no more than 28%; and on your net short-term gain at your ordinary tax rate, now up to 39.6%.
But what if you have net gain in some categories and net loss in others? If you have a total of $5,000 in short-term gain and a total of $9,000 in long-term loss, you’d net them together to wind up with a $4,000 net capital loss on that year’s tax return.
The same process applies for determining your net gain for collectibles. Keeping in mind that long-term gain from the sale of collectibles such as gold is taxed up to 28%, you can use net loss from other categories (short- or long-term) to offset your collectibles gain.
Suppose you have a $25,000 net collectibles gain this year from selling gold bullion. That might result in a $7,000 tax at a 28% rate. However, say you also have $30,000 in net capital loss from selling stocks. Now you have a $5,000 net capital loss for the year, and you’d owe no tax at all on your sale of gold bullion. Loss that usually shelters gain taxed at 15% or 20% becomes more valuable when it offsets gain that would be taxed at 28%.
Under the tax code, up to $3,000 worth of net capital loss can be deducted from your gross income each year. Any net loss over $3,000 can be carried over to future years. Each year, loss that has been carried over can offset net capital gain, while any remaining excess loss can be carried over again. There is no time limit as to how many years you can carry over such losses.
Therefore, one proven strategy is to…