When it comes to taxes, the alphabet is just the beginning, collecting coins is a very unfinancial but financially rewarding hobby or investment. Yes, you should generally report gold transactions to the Internal Revenue Service (IRS). Sales of physical gold or silver must be reported in Schedule D of Form 1040 on your next tax return. The IRS considers physical holdings of precious metals such as gold, silver, platinum, palladium and titanium to be capital assets specifically classified as collectibles.
Holdings of these metals, regardless of their shape, such as ingot coins, ingots, rare coins or ingots, are subject to capital gains tax. Capital gains tax is only due after the sale of such shares and if the shares were held for more than one year. Coins are collectibles, which means that, although profits are long-term capital gains, they don't usually qualify for a lower tax rate. Instead, currency earnings are taxed at 28 percent or at their marginal tax rate, whichever is lower.
For example, if you're in the 25 percent tax bracket, you'll continue to pay the 25 percent tax rate on the profits you make when selling legacy currencies. But if you're in the 33 percent bracket, your coins will only pay a 28 percent tax. Over time, some collectors can create great wealth by collecting coins. While collecting coins can generate profits, sometimes attractive, for a collector, some very serious income tax consequences cannot be overlooked.
After collecting for several months and buying coins for his collection, Sam sees a Bust coin and wants to collect Bust coins but realizes that he can't collect either Indian head cents or Bust coins for budgetary reasons. So, on the next show, Sam sees that wonderful Bust coin he must have. So, once again, Sam wants to exchange a penny from Indian Head to the dealership but the dealer doesn't want to do the operation.Sam sells his collection to someone else for cash and then buys the Bust coin to start his new collection. Sam is a delighted and very proud owner of the famous Bust coin but innocently doesn't realize that the events that occurred have income tax consequences.
When it comes to paying taxes, Sam talks to his tax accountant about how he purchased the Bust coin. The tax accountant is happy with Sam's new addition but now he needs to explain the implications of income tax to Sam.The first question the accountant asks Sam is whether he was buying the coins for a hobby or as an investment - a thought that never occurred to Sam. To determine if the coins are considered an investment, Sam depends on his personal goals for his collection. If Sam buys coins solely for pleasure and isn't looking for profit then it's clearly a hobby.
If Sam buys coins solely for a profit then Sam is an investor.Usually most collectors collect coins for a combination of reasons including both pleasure and profit. In these cases income tax laws aren't as clear as to whether Sam is an amateur or an investor. First of all if Sam collects coins solely for personal reasons it's a hobby; and every time Sam sells a coin for profit it's taxable. The amount of taxable income is the difference between how much Sam sold the coin for less than the price he paid.If Sam sells the coin for less than what he paid then the loss is considered a personal loss and not deductible.
In addition if there are any expenses you spend to maintain your hobby those expenses are not deductible either. Whether an amateur or a collector the coins in Sam's collection are considered a capital asset under income tax laws. Consequently profits from the sale of a capital asset are considered to be short-term or long-term.Long-term capital gains are taxed at a lower tax rate than short-term gains; this is when Sam owns the coin sold for more than a year. The tax rate on long-term capital gains for the sale of collectibles (i.e., gold coins with fractional denominations; American Eagle gold or silver coins; any piece of foreign currency that has not been explicitly mentioned in the IRS List of Declarable Items; as well as pieces of U.
S. currency that were created after the creation of the list in the Decade of 1980s) is 28%. If Sam is an investor and sells any currency at a loss he can offset the losses with any capital gain including stock gains during the year and save income taxes.Following this advice should help protect collectors and investors from having a bad tax experience. For purposes of this rule a single transaction has same meaning as term single sale described in Rule 12A-1.003 F A C; dealers must maintain appropriate documentation to fully or partially exempt sale of coins currencies or ingots until Chapter 212 F S.If proper documentation is not maintained and maintained then entire transaction will be taxable; appropriate documentation in case of transaction involving currencies or currencies shall describe country issue grade denomination nominal value and selling price of each item of currency or currency plus additional information to clearly identify each currency or currency; in case of transaction involving ingots appropriate documentation will describe metal quantity shape (such as bars or ingots) and selling price of each ingot item.