Is a Gold ETF Taxable?

Author: Focus on the User | 5 min read
Taxing a Gold ETF

In ancient times, gold was one of the most common currencies. However, as time passed and different times introduced new currencies, gold became more of a special commodity and a precious metal rather than used for day-to-day trade.

Investments in gold savings are one of the best and most efficient to ensure that your nest egg grows successfully. However, you don't have to invest in gold through physical means only. And sometimes, the storage and security of physical gold can also be challenging. Instead, many other strategies let you invest in gold through other means. Some of these include gold exchange-traded funds, gold futures, gold bonds, gold mutual funds, etc. Hence, one advantage of a gold ETF is that you do not have to worry about additional hidden costs, but it is best to be aware of the tax costs.

When you sell gold, you make profits and might get good returns on your investment. However, your profits can be subject to taxes such as income tax or tax for general consumption.

When you begin investing in commodities, you must keep calculating the tax you will need to pay. However, many people are unaware of how the commodities will be taxed. And when paying the taxes, they are surprised to see the high tax rates.

We have discussed how gold ETFs are taxed, as it is important to know the tax rates and investment returns of the commodity you choose to invest in.

Taxes and Gold ETFs

Gold ETFs are one of the most sought-after commodities. They are traded through the stock exchange. They are an alternative investment for gold bullion and stock shares that provide exposure to gold. Gold ETFs can be traded on the stock exchange during market hours. The prices are readily available online, making it a transparent trade.

With gold ETFs, investors can buy and sell gold, similar to the buying and selling of common stock, however, with lower transaction costs. Gold ETFs have no lock-in period, physical storage costs, or exit load. Nevertheless, many overlook the specific taxation requirements for each commodity and how they change during tax season. Gold ETFs are charged accordingly to short-term gains and long-term gains.

One gold ETF is equal to 1 gram of physical gold. The taxes on gold ETFs are equal to the sale of physical gold.

If you have a gold ETF outside an IRA, it will be taxed as a collectible. If the holding period exceeds a year, then the gold ETF will be taxed at ordinary income rates.

Gold and IRAs

IRAs are retirement accounts that are a common way to prepare your retirement savings fund. In these accounts, you invest in different items such as stocks, bonds, mutual funds, etc. When IRAs were introduced, investors were prohibited from investing in any collectibles. The IRS later modified this to allow investments in silver and gold coins. Afterward, gold bullion with a purity of gold of 99.5% was also allowed. Moreover, precious metals could be invested in only precious metals IRAs, not traditional or Roth IRAs.

Later, IRS also allowed buying shares in precious metals ETFs, categorized as a grantor trust. IRA still has the restriction of not allowing the IRA owner to have physical possession of the gold. With a traditional IRA, the gold held in any form is not taxed until you withdraw your funds. Therefore, you can invest in gold ETFs through your IRA too. And the gains you get from stocks, gold mining ETFs and mutual funds that are in possession of your Individual Retirement Account for more than a year are taxed at long-term capital gain rates.

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Physical Gold ETFs

Physical gold is counted as a collectible and taxed as one. They will not be taxed on the long-term capital gains rates of 15% or short-term capital gains tax rates of 35%. Rather, a 28% long-term capital gains rate is charged, much higher than the standard rate. And the short-term rate remains at 35% as they are treated as ordinary income.

Therefore if you are not aware of the taxes on physical gold ETFs, you might get a shock when instead of getting a tax rate of 15%, you have to pay at a rate of 28%. Your estimated gains will also be reduced due to this surprise.

Gold Futures ETFs

Gold ETFs that are future-based are not a very common choice among investors. However, they are still considered.Future-based ETFs are generally not considered collectibles, so the standard for the collectibles tax rate is about 15%/35%.

Factoring Taxes When Considering Gold ETFs

Gold ETFs are an excellent choice for investment and have been increasingly becoming popular too. However, if you buy gold physical gold ETFs, you might be burdened by the tax.

Long-term gains from these funds will be taxed higher than the standard rate, and not all investors want to pay high taxes.

You should always know the tax implications of investing in different commodities. Avoid being surprised by the tax rates at the end when making profits, and don't burden yourself! Additionally, taxes are not a means to scare you from investing in precious metals. Precious metals will help you diversify your portfolio, but you should know the various tax treatments. We hope you can understand the requirements of gold ETFs and invest accordingly to boost your savings!


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Disclaimer: Content on this website is not intended to be used as financial advice. It is not to be used as a recommendation to buy, sell, or trade an asset that requires a licensed broker. Consult a financial advisor.

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