Temptation to cheat

[Xtal]

That raises a question I've had for a while.  How do you pay tax -- or tax loss harvest -- on physical gold?  Do you have to keep receipts of what you bought, when you bought it, and how much you paid for it?  One gold coin looks like another, so I can't imagine there's a need to keep track of which coins were bought for which amount. 

Let's say I bought 3 coins over time: one for $500, another for $1,000, and a 3rd for $1,500.  If I wanted to sell one today, I could just claim it was the $1,500 coin I was selling to minimize my tax bite, right?  Do you have to whip out your receipt each time you sell a coin? 

That is a very good question!  The whole process of how gold is taxed really irritates me.  Like how it's considered a "collectible" and not an investment.

I keep a spreadsheet with my gold purchases (date, what type/year of coin, etc.)  If it were time for me to sell any of my gold, you'd better believe I'd sell the "collectible" coin with the highest purchase price, so as to avoid paying tax to the extent possible.

I am not an accountant or a tax lawyer, though.  This is just my "common sense" interpretation of the law -- whatever that's worth (which may not be much). 

[sophie]

I guess you'd have to apply one of the procedures used to determine cost basis for any other type of investment.  It's rather like how it used to work for stock and fund purchases before mandatory reporting of all brokerage transactions, except that with gold it's even less enforceable because an IRS auditor would have only your own records to rely on.

I had some fun a few years back figuring out the cost basis for stocks bought before 2001 at Morgan Stanley.  They lost a lot of my account records in the 9/11 attacks.  I ended up having to make up some figures, based on the approximate date of sale and the stock value at the time.  Would have been a real adventure if I'd got audited.

Talk of temptation to cheat...

[portart]

I sold a lot of physical gold some years back I bought at 300 and sold at 1200 (too early). The tax bite was based on the receipts I bought them for from Golddealers.com. It was taxed at like 35% of the profits and after paying the bill, I was sorry that I sold it after writing that check but I wanted to pay down some of my mortgage. The way they tax gold, it's kind of unfair. You can sell ETF gold for same as your taxed from any mutual fund. It's like the government wants to discourage you from investing on physical gold with taxation.

[dualstow]

...
I had some fun a few years back figuring out the cost basis for stocks bought before 2001 at Morgan Stanley.  They lost a lot of my account records in the 9/11 attacks.  I ended up having to make up some figures, based on the approximate date of sale and the stock value at the time.  Would have been a real adventure if I'd got audited.
...

Wow! I guess nowadays they have backups in many locations.

[Reub]

Yes, but how about GTU?

[MachineGhost]

GTU would presumably be taxed as a collectible as well, unless the PFIC as a QEF election is taken on form 8621. Then regular capital gains rates would apply.

So why wouldn't we all be encouraged to do this for shallow gold?  15% is a heck of a lot better than 35% unless you're not reporting the sells.

[dualstow]

GTU would presumably be taxed as a collectible as well, unless the PFIC as a QEF election is taken on form 8621. Then regular capital gains rates would apply.

So why wouldn't we all be encouraged to do this for shallow gold?  15% is a heck of a lot better than 35% unless you're not reporting the sells.

I will do it if I end up in a higher tax bracket, but right now I'm anxious to be rid of my GTU and to hold more coins instead.

[portart]

It's hard to buy physical and declare your own IRA so you can buy and sell it without incurring a tax event if your storing your own.

[sophie]

There are such things as IRA custodians for gold coins.  These have been discussed on this forum and the consensus is that they're not worth it.  They're very expensive, and the gold is unallocated. Fidelity has a gold coin storage program if you want to look into it.

What dualstow et al are talking about is keeping about 1/3 of the gold allocation in a tax-advantaged account, since it's unlikely you'd need to dig deeper than this when rebalancing.  The rest can be considered "deep storage". 

I had gone the GTU route as well, and I'm glad I got rid of it and converted to physical a little bit ago.  It wasn't worth the headache, and there are big advantages to having physical coins in your possession that you don't realize until you try it.  I really like having a small slice of my wealth out of the banking/brokerage system.