U.S. investors who sell precious metals will only owe tax if the price from the sale of these investments exceeds the original price they paid; a profit known as a capital gain. The Internal Revenue Service (IRS) taxes capital gains from the sale of precious metals at either a short-term or long-term rate depending upon the amount of time a taxpayer has held onto his investment. While U.S. taxpayers have the responsibility of reporting gains and paying taxes, coin dealers do not usually report precious metal transactions under $10,000 in cash to the IRS at the time of publication, according to Certified Mint.
If an U.S. taxpayer holds onto precious metals for less than a year, he will pay regular income tax rates on all capital gains. He will not owe Medicare and Social Security taxes on his earnings. For the 2011 tax year, a taxpayer who earns $0 to $8,500 after deductions and credits will owe 10 percent on her earnings, and she will pay 15 percent tax on all income earned between $8,500 and $34,500. The IRS collects a 35 percent tax on all total income earned in excess of $379,150 for a single or married taxpayer filing jointly as of 2011, according to Oblivious Investor.
The IRS taxes long-term capital gains taxes on precious metals at a higher rate than other types of investments if a taxpayer holds onto his precious metals for a year or more. Profits from the sale of precious metals fall under the category of collectibles, regardless of whether the taxpayer owns ETF shares, bullion or coins. The IRS levies a flat tax rate of 28 percent on collectibles at the time of publication that applies regardless of how much income the taxpayer earns in a year.
U.S. taxpayers do not have to report gains until they sell their precious metals, according to Citizens for Tax Justice. They must claim their capital gains as income in the year in which the metals were sold and will have to pay all taxes on their gains by April 15 of the following year. Taxpayers should pay estimated taxes to the IRS using Form 1040-ES as soon as possible after they sell their metals if they have a significant tax liability. Failure to do so can result in the IRS assessing an underpayment penalty on all owed tax monies.
Taxpayers must attach Form 1040, Schedule D to their tax return to report their gains from the sale precious metals. They will report their short-term capital gains on Part I of this form and long-term gains on Part II. Individuals with long-term capital gains on collectibles will have to fill out the worksheet on page D-8 of the Instructions for Schedule D. All taxpayers with net capital gains from the sale of precious metals will have to complete the Schedule D Tax Worksheet on page D-10.
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