How are the taxes handled in the selling of gold bullion?

July 19, 2021 by Carolyn Richardson, EA, MBA
Gold Bullion

Hi Dale,

You asked: How are the taxes normally handled in the selling of a large sum of gold bullion to a company say 65kgs? Is the tax normally taken out and the remainder is send to the seller?

Normally, when you sell a large amount of precious metals like gold either through a broker or directly to a smelter, they would be required to issue you a Form 1099-MISC, 1099-NEC, or 1099-B, depending on what type of buyer they are and what kind of seller you are. It may also depend on what form the gold takes, such as gold coins or actual bullion. However, none of these reporting forms would require the buyer of your bullion to withhold taxes on your behalf.

If you are in the business of selling bullion, either through buying and reselling or through mining gold, then the sale of the bullion would be ordinary income to your business and should be reported as gross receipts. Any expenses incurred in acquiring or mining the gold would be deductible against the profits to determine the net taxable gain, and that would be subject to self-employment taxes (at 15.3%) in addition to regular income taxes.

If you purchased the gold as an investor, then the sale of the gold would be reported on your Schedule D and Form 8949 for capital gains and losses. You would report the selling price you received, less the original cost of the bullion, and any selling expenses to determine the net gain. Capital gains receive a lower tax rate, which would be 0%, 15%, or 20%, depending on your income. If the gold is in the form of gold coins, then depending on the date they were purchased or acquired, they may be considered to be “collectibles” (if acquired before 1998). Collectibles are taxed at a 28% capital gains rate. Gold jewelry is also considered to be collectible and is treated similarly.

If you are transferring the coins or bullion to obtain other property rather than selling them outright for cash, the selling price of the coins or bullion is the fair market value, not the value of the base metal. For example, if the gold is in the form of a gold U.S. $20 coin with a base metal value of $300, but a fair market value as a collectible coin is $450, then the selling price in a noncash transfer would be $450. While gold U.S. coins are considered to be “legal tender,” they cannot be valued at their face value for tax purposes.

Regardless of whether it is taxed as business income or investment income, you are responsible for paying the taxes on the amount realized in the sale. The buyer is not required to withhold income taxes on the proceeds unless you are a nonresident alien. We hope this answers your question.

Sincerely,
Carolyn Richardson, EA, MBA

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Carolyn Richardson, EA, MBA
Learning Content Managing Editor

 

Carolyn has been in the tax field since 1984, when she went to work at the IRS as a Revenue Agent. Carolyn taught many classes at the IRS on both tax law changes and new hire training. In 1990, she left the IRS for a position at CCH, where she was a developer on both the service bureau software and on the Prosystevm fx tax preparation software for nearly 17 years. After leaving CCH she worked at several Los Angeles-based CPA firms before starting at TaxAudit as an Audit Representative in 2009. Carolyn became the manager of the Education and Research Department in 2011, developing course materials for the company and overseeing the research requests. Currently, she is the Learning Content Managing Editor. 


 

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