John R. Bullis: Investments in gold
There are many ways to invest in gold. Some have some surprising tax rules.
As with all investment decisions, you would not want to put all your money in gold or any one stock.
Diversification is best. If you choose to invest in gold (directly or indirectly), maybe you should limit the amount to about 5 percent of your total investments.
You could buy gold bullion bars and store them yourself, or you could have them stored at a facility. Some folks like the bullion coins such as Krugerrands or American Eagles.
The surprise is bullion is a “collectible” under the tax rules and is taxed at a special 28 percent long term capital gains rate (not the usual 15 or 20 percent long term tax rate). And “collectibles” are not allowed to be owned by a traditional or ROTH IRA. But gold bullion coins that are also legal tender such as the American Eagle coins are OK for IRA investments.
Exchange-traded funds (ETFs) are known as an indirect way to invest in gold bullion. You can buy and sell shares in an ETF using a brokerage account. ETFs have some annual expenses but they are liquid, can be sold easily. ETF shares are OK for investment by an IRA. They are treated like investments in corporate stock or mutual funds.
There are gold futures or an ETF that trades in gold futures. They are not considered to be collectibles but all gains are reported as 60 percent short term capital gains and 40 percent as long term capital gains, regardless of how long you have owned them. Also since these ETFs are organized as a partnership, gains and losses each year are reported on your return. It does not matter if you did not get any distributions or you did not sell the shares, your share of gains and losses are reported each year.
Many folks just buy shares of corporation stock of companies that mine and produce gold and/or other metals. The value of those shares go up and down for many reasons, not just the price of gold. Those shares are not collectibles so the tax rules are the same as any other corporation stock investments and can be owned in an IRA. They can be purchased individually or by buying a mutual fund shares or by buying certain ETFs.
I think investing in gold is interesting, but probably not as profitable as regular good, big corporation stock investments. I saw one client very quickly lose a lot of money in gold futures.
Did you hear? “Two things the country can always be sure of: taxes and children,” by Anonymous.
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.