If you have only purchased physical gold, it is not considered a cancellation that may or may not apply. A cancellation related to gold purchases depends on what you did after purchasing your gold during the most recent fiscal year. For example, if you just bought some gold bars and coins and saved them, this is not a valid cancellation. Alternatively, if you opened an IRA Gold account and invested in gold stocks, then this could be a valid cancellation.
Read The Motley Fool's latest special report on gold to discover the small gold stocks that are making huge profits. Comparisons between hypothetical taxpayers generally indicate a significantly higher after-tax rate of return for any form of gold held in a traditional IRA than in a brokerage account and slightly higher than that of a Roth IRA. The example assumes that the costs and fees of buying, owning and selling gold coins, gold mutual funds, and gold futures ETFs are the same. When gold increases in value and provides profits, strong pre-tax returns may not translate into strong after-tax returns. You get more than 3.2 percentage points of annualized after-tax return when you use a traditional IRA instead of a brokerage account for your investment in gold mutual funds and more than 4.2 percentage points of annualized after-tax return for your investment in gold coins.
In the case of brokerage accounts, an investment in gold mutual funds is more likely to offer a higher after-tax return than gold coins or a gold futures ETF. Net earnings should be included in gross income, even if there were no distributions and the investor didn't sell any shares in the fund. Investors always want to consider the total cost of ownership when weighing different precious metal investment options. ETFs allow investors the convenience of buying and selling gold in the same way that they buy and sell common stocks, with low transaction costs.
The premium for gold coins is higher because they are manufactured by government mints and have detailed designs. You're also considering making your investment through a brokerage account, a Roth IRA, or a traditional IRA. These companies are more likely to fail due to risks associated with exploration and development, making investors more likely to assume losses. The after-tax annualized return on gold coins is the lowest, approximately one percentage point lower than that of the gold investment fund, which receives the LTCG treatment.
Like all investments in an IRA, profits from gold sold within an IRA are not taxed until the cash is distributed to the taxpayer, and distributions are taxed at the taxpayer's marginal tax rate. However, short-term gains made from the sale of gold or silver ETFs are subject to a maximum federal rate of 39.6 percent.