Gold taxes: The elephant in the living room?

[Sam Brazil]

Being new to PP, I was baffled by why folks who are normally so obsessed with minimizing tiny basis point expenses would embrace physical gold, which carries with it multiple percentage point premium expenses, plus storage and insurance. Ya, you get the benefit of direct ownership if the SHTF, but that's a very very steep price to pay in a long term investment.

Could the answer, which no one is talking about, be dodging Uncle Sam? After all, if you buy physical gold in cash, then sell physical gold at a profit, and receive cash in turn...a dishonest person could simply not pay any taxes. In that instance, saving 28% in capital gains taxes dwarfs a ~5% premium. It's an all cash transaction...so it's the exact same dynamic you find with all cash businesses.

So is this the unspoken benefit of gold that's driving much of the physical gold trade and justifies the expenses that come with it?

[Kshartle]

if you buy physical gold in cash, then sell physical gold at a profit, and receive cash in turn...a dishonest person could simply not pay any taxes.

Is it dishonest to avoid the the road patrolled by brigands?

Is it dishonest for the pizza delivery guy to put a sign on his car saying he has less than $20 in cash when in fact he has more than $100?

Is it dishonest to try to avoid having your property stolen from you?

Those are all rehtorical.

You hit the nail on the head for one reason. The bigger one is counterparty risk. It's potentially less risky for me to have the gold in a safe or dug into a hole in my backyard than have someone "safeguard" it for me.

The point is when the gold is really needed (currency crisis), do you really want to trust someone else to hand it over to you?

The premium for a coin flucuates. It's much more likely when you really need the gold and it's super valuable (currency crisis), the premium will be paid back and then some by additional premium.

[Sam Brazil]

My understanding is also that Gold Eagles do not trigger 1099 IRS reporting requirements, whereas Maples and Krrands do...could this explain the Gold Eagle premium? I know the traditional answer is that they're less likely to dent...but that seems like a pretty thin explanation compared to the 1099 exemption?

[Kshartle]

My understanding is also that Gold Eagles do not trigger 1099 IRS reporting requirements, whereas Maples and Krrands do...could this explain the Gold Eagle premium? I know the traditional answer is that they're less likely to dent...but that seems like a pretty thin explanation compared to the 1099 exemption?

Both sound like good answers!

[Sam Brazil]

Ok, well, call me a conspiracy theorist, but why would the US government exempt from reporting the sale of Gold Eagles? But require them for other foreign coins?

Seems like a great ploy to push Americans who are planning on evading taxes into Gold Eagles, and then by changing the law later make it much harder for them to evade taxes....all while helping US minting and mining industry (because Gold Eagles are only supposed to use US gold). 

[Kshartle]

Ok, well, call me a conspiracy theorist,

Conspiracy theorist!!!!

It definately sounds like the government prefers that foreign coins not be purchased and held over US minted coins but I've never pondered why. You'd probably have to look at the original legislation and see who supported it. Sometimes stuff just hangs around for decades after the original benefiting politicians are long dead.

[Stunt]

In Canada, no sales tax is applied to all gold and silver with greater than 99% purity. Maples, Eagles, Roos all tax free but Krugs are taxable.

I buy physical because I don't trust the paper market, insurance against a SHTF scenario and yes tax avoidance. Hopefully my stash will get passed down to my kids as tax free inheritance (dad's "coin collection")

[dragoncar]

Is it dishonest for the pizza delivery guy to put a sign on his car saying he has less than $20 in cash when in fact he has more than $100?

Yes obviously it is

[Kshartle]

Is it dishonest for the pizza delivery guy to put a sign on his car saying he has less than $20 in cash when in fact he has more than $100?

Yes obviously it is

Gee whiz man he's trying to deter robbers. If a bunch of thugs show up at your door and the wife and kids are hiding in the basement you'd consider is dishonest to say they weren't home?

[dragoncar]

Is it dishonest for the pizza delivery guy to put a sign on his car saying he has less than $20 in cash when in fact he has more than $100?

Yes obviously it is

Gee whiz man he's trying to deter robbers. If a bunch of thugs show up at your door and the wife and kids are hiding in the basement you'd consider is dishonest to say they weren't home?

Yes.  I'm not saying I would be honest, but lying is certainly dishonest.  By definition.

[Kshartle]

Yes obviously it is

Gee whiz man he's trying to deter robbers. If a bunch of thugs show up at your door and the wife and kids are hiding in the basement you'd consider is dishonest to say they weren't home?

Yes.  I'm not saying I would be honest, but lying is certainly dishonest.  By definition.

Ok well so would everyone. That wouldn't make you a dishonest person. There is no virtue in honestly helping someone harm you. The original post proffered that it's dishonest people who don't report gold coin sales to the government so they can claim a cut. I'm just disputing that concept that it's dishonest to or a dishonest person who doesn't help thieves and thugs.

Ohhh well whatever. One man's rhetorical question..........

[Mark Leavy]

Being new to PP, I was baffled by why folks who are normally so obsessed with minimizing tiny basis point expenses would embrace physical gold, which carries with it multiple percentage point premium expenses, plus storage and insurance. Ya, you get the benefit of direct ownership if the SHTF, but that's a very very steep price to pay in a long term investment.

Could the answer, which no one is talking about, be dodging Uncle Sam? After all, if you buy physical gold in cash, then sell physical gold at a profit, and receive cash in turn...a dishonest person could simply not pay any taxes. In that instance, saving 28% in capital gains taxes dwarfs a ~5% premium. It's an all cash transaction...so it's the exact same dynamic you find with all cash businesses.

So is this the unspoken benefit of gold that's driving much of the physical gold trade and justifies the expenses that come with it?

I was wondering when someone would broach this topic.  Kudos for the cajones to lay it on the line.

re: "saving 28% in capital gains taxes dwarfs a ~5% premium"
I think what you are missing here is that the 28% is on the Capital Gains and the 5% is on the Gross.  Thus, depending on an individual's personal gain, it may not really be too onerous to comply with the law of the land.  Admittedly, though, the incentive is always against it.

[barrett]

My understanding is also that Gold Eagles do not trigger 1099 IRS reporting requirements, whereas Maples and Krrands do...could this explain the Gold Eagle premium? I know the traditional answer is that they're less likely to dent...but that seems like a pretty thin explanation compared to the 1099 exemption?

Sam B, I was told by my friendly neighborhood coin dealer that they charge more for the Eagles because they maintain an inventory for their customers (You want 2014 Eagles? We got 'em). Because they keep more of them in stock, they take on risk that they will have to hold them longer and might sell them at a loss. To cover themselves on average, their commission is higher. I was also told that they pay spot when buying Eagles back, but 1-2% under spot for the Kruggs and Maples. So the slight discount you get when buying the other coins is basically a wash... at least at that particular dealer.

I only have a few coins and don't plan on selling them anytime soon. If I still have them in 30 years, I'll deal with whatever the rules are at that point and be as compliant as I need to be. Lots of other regulatory changes can happen in that time frame too, and we can't really predict any of them. For example, the capital gains tax could change (go up) dramatically, making it less desirable to own stocks. Paying bills in cash is now really suspect. As far as I know, one is still allowed to hold quite a lot of it but that will probably change because the economy can come to a halt if its all tied up.

Maybe the takeaway is just to be as diversified as possible so that any one regulation doesn't impact you too greatly. Harry Browne urged people to not be confrontational when they didn't need to be. Bruce Li's advice was "Be like water my friend."

[Ad Orientem]

I will confine my statement to responding to what I read as an implied approval of tax evasion in some comments above....

Taxes are the price of citizenship. If you don't want to pay them then you should have the integrity to move somewhere else rather than mooch off the benefits of other people's taxes. If you don't believe in citizenship that's fine too. But stop taking advantage of things other people pay for, like roads, police, fire departments, parks, libraries etc. ad infinitum. It's more than a bit hypocritical.

No one likes taxes. But all excepting hardcore anarchists accept we need some form of government, even if we may disagree on the boundaries and proper responsibilities of the state. As for anarchism it is a theoretical joke in much the same way that Communism is/was and I have no time for such nonsense. Which is the main reason I avoid those silly debates. My bottom line is that as a tax payer and someone who served (at poor pay) in the armed forces, I have zero sympathy for tax dodgers.

[Sam Brazil]

Sam B, I was told by my friendly neighborhood coin dealer that they charge more for the Eagles because they maintain an inventory for their customers (You want 2014 Eagles? We got 'em). Because they keep more of them in stock, they take on risk that they will have to hold them longer and might sell them at a loss. To cover themselves on average, their commission is higher.

Doesn't that sound backwards? If you've got an item that's extremely liquid and always easily sells, you can afford to charge less and make up lost profit in volume. That's why odd collectables that take a while to sell have higher premiums.

[Xan]

Ad O,

I'd agree wholeheartedly if we were talking about local or state taxes.  But federal taxes are a situation where the government doesn't need the money.  Does somebody paying less in federal taxes than he should mean that I'm paying more?  I think the answer to that isn't as simple as it seems.  Also, it may be that a private entity will do a better job for society overall at handling the money than the government would.

Don't get me wrong; I pay all my federal taxes.  I just don't necessarily condemn those who "fudge" things the way I used to condemn them, before the monetary system was explained to me.

[Kshartle]

I will confine my statement to responding to what I read as an implied approval of tax evasion in some comments above....

Taxes are the price of citizenship. If you don't want to pay them then you should have the integrity to move somewhere else rather than mooch off the benefits of other people's taxes.

When you pay taxes you transfer the purchasing power you earned through work or investment to a politician who did not earn it. Since he/she did not earn they do not care about it. They will spend on on their re-election campaigns by promising to give it to people who will vote for them. They will spend it on contracts handed out to their friends and on jackboots to crush their enemies. They might even spend it on bombs to murder children in Iraq. One thing is for certain, they will not spend the dollar on something as valuable as the effort you undertook to create it. Therefore a portion of the value has been destroyed.

When you keep that dollar you get to spend it in a way that pleases you much more. You will employ other people in real value creation because you purchase the goods and services at least one person (you) desire. You might donate it to an actual charity that helps rather than a welfare rat hole. You might even make an investment that other smart people will then take and use the purchasing power to create new technology or business that generate profits (create value).

One thing is certain. When you keep the dollar we are better off, when you hand it to the tax man we are worse off.

Please everyone avoid as much taxation as you can (in a safe way) and help us all. The beast doesn't need more feeding, it will just get bigger and want to eat more. It will destroy more people, some of them little children in faraway places.

[murphy_p_t]

My understanding is also that Gold Eagles do not trigger 1099 IRS reporting requirements, whereas Maples and Krrands do...

...is this

is this accurate? I haven't sold any coins? The coin shop generates a form sent to the IRS when you sell a Krrand?

[FarmerD]

My understanding is also that Gold Eagles do not trigger 1099 IRS reporting requirements, whereas Maples and Krrands do...

...is this

is this accurate? I haven't sold any coins? The coin shop generates a form sent to the IRS when you sell a Krrand?

A 1099 is generated whenever you sell 25 or more Maples or Krugerrands.
http://www.miningandmetallurgy.com/gold ... ement.html

[Kshartle]

My understanding is also that Gold Eagles do not trigger 1099 IRS reporting requirements, whereas Maples and Krrands do...

...is this

is this accurate? I haven't sold any coins? The coin shop generates a form sent to the IRS when you sell a Krrand?

A 1099 is generated whenever you sell 25 or more Maples or Krugerrands.
http://www.miningandmetallurgy.com/gold ... ement.html

I guess I will just sell them 24 at a time! 

[Stunt]

I will confine my statement to responding to what I read as an implied approval of tax evasion in some comments above....

Taxes are the price of citizenship. If you don't want to pay them then you should have the integrity to move somewhere else rather than mooch off the benefits of other people's taxes. If you don't believe in citizenship that's fine too. But stop taking advantage of things other people pay for, like roads, police, fire departments, parks, libraries etc. ad infinitum. It's more than a bit hypocritical.

No one likes taxes. But all excepting hardcore anarchists accept we need some form of government, even if we may disagree on the boundaries and proper responsibilities of the state. As for anarchism it is a theoretical joke in much the same way that Communism is/was and I have no time for such nonsense. Which is the main reason I avoid those silly debates. My bottom line is that as a tax payer and someone who served (at poor pay) in the armed forces, I have zero sympathy for tax dodgers.

For the most part I agree but I do consider this a different circumstance.
All gold is purchased with after tax income and buyers of gold are looking for money that can stand up to inflation. People are not looking to get rich off gold but to hedge the actions of government that have overstepped their jurisdiction on many fronts.

[Kshartle]

I will confine my statement to responding to what I read as an implied approval of tax evasion in some comments above....

Taxes are the price of citizenship. If you don't want to pay them then you should have the integrity to move somewhere else rather than mooch off the benefits of other people's taxes. If you don't believe in citizenship that's fine too. But stop taking advantage of things other people pay for, like roads, police, fire departments, parks, libraries etc. ad infinitum. It's more than a bit hypocritical.

No one likes taxes. But all excepting hardcore anarchists accept we need some form of government, even if we may disagree on the boundaries and proper responsibilities of the state. As for anarchism it is a theoretical joke in much the same way that Communism is/was and I have no time for such nonsense. Which is the main reason I avoid those silly debates. My bottom line is that as a tax payer and someone who served (at poor pay) in the armed forces, I have zero sympathy for tax dodgers.

For the most part I agree but I do consider this a different circumstance.
All gold is purchased with after tax income and buyers of gold are looking for money that can stand up to inflation. People are not looking to get rich off gold but to hedge the actions of government that have overstepped their jurisdiction on many fronts.

Don't forget that the rise in the price of gold is a direct result of the interest rate and inflation policy of the government.

You buy a coin for $1,000 to protect yourself from the inflation tax. They debase the currency by 50%. The coin is now $2,000. You sell it. They take $300 in taxes. If you try to re-buy it you can only get .85 of a coin!

They stole 15% of the coin you originally bought with your "after-tax money"!

Ahahahahahah.....some gain. What a racket. Ohhhh i forgot I owe them 15% of MY coin because I didn't just hold paper and let them steal through inflation. Or is it because they stole some other money of mine and gave it to some of their friends to offer me a "service" I didn't ask for.  I can never forget why I owe my masters my property, there are so many good reasons. I guess it's because without them who would educate the roads.

Sheesh you guys with the Stockholm syndrome.

[MachineGhost]

Ok, well, call me a conspiracy theorist, but why would the US government exempt from reporting the sale of Gold Eagles? But require them for other foreign coins?

Seems like a great ploy to push Americans who are planning on evading taxes into Gold Eagles, and then by changing the law later make it much harder for them to evade taxes....all while helping US minting and mining industry (because Gold Eagles are only supposed to use US gold).

It's not a conspiracy.  I think it has to do with the other coins being useful for settling future contracts, since they predate the Eagles and so does future contracts.  The IRS could easily institute 1099 reporting on all gold sales and you can pretty much guarantee it will happen in a crisis where gold becomes king.  Store it offshore if you're worried about it.

[WildAboutHarry]

The capital gains tax on collectibles (including gold) is not 28%.  It is what your tax bracket is or 28%, whichever is smaller.

[Kshartle]

The capital gains tax on collectibles (including gold) is not 28%.  It is what your tax bracket is or 28%, whichever is smaller.

If that was meant for me WAH, I know, I was trying to use simple numbers to make a point.

You got hit with income/SS/medicare taxes on your income of maybe 30%, then you take your leftover cash and buy a gold coin. It doubles in price over time due to inflation (unless you're good at timing your selling and buying and catch windfall gains - doubtful). Then you pay another chunk on the "gains". All that's happened is they've stolen another 14% or whatever of the money they already taxed! Supposedly that money was yours....guess not!

People tell themselves that they owe this money and it's the price of citizenship (with all it's benefits  ). They do this to cope with the reality that everywhere they turn the state is reaching into thier pockets to rob them.

That being said, everyone please pay whatever bribes you need to in order to avoid having the jackboots kidnapp you and throw you in a rape cage. Ahhh.....citizenship.