Gold ETF Sellers Facing Tax Surprises at 28% Gains Rate

Gold ETF Sellers Facing Tax Surprises at 28% Gains Rate

Investors who dumped shares in gold exchange-traded funds amid the biggest selloff in the metal in four years may be in for a shock: capital-gains taxes are higher than for stocks and bonds.

Profits from investments in ETFs that back their shares with physical holdings of precious metals face taxes as high as 28 percent for investments held at least a year. That’s the rate the U.S. Internal Revenue Service applies to items it considers “collectibles,” such as coins, art, silver and gold. Long-term gains from stocks and bonds, including equity and fixed-income ETFs, are taxed at a maximum 20 percent.

“There are some tax surprises out there lurking for them when they go to sell,” Tim Steffen, director of financial planning at wealth-management firm Robert W. Baird & Co. in Milwaukee, said of gold exchange-traded product investors.The shares in SPDR Gold Trust (GLD), the largest gold ETF, with $45.7 billion in assets, dropped 23 percent in the seven months through May 17 after more than doubling in preceding five years. The ETF rallied 3.1 percent yesterday as gold and silver futures rebounded after Moody’s Investors Service said U.S. policy makers must address debt woes to avoid a credit downgrade.

Assets in Gold Trust dropped 37 percent this year through last week as sellers including billionaire George Soros forced the fund to redeem shares. Gold saw a seven-session slump through the end of last week that was the longest since March 2009.

George Padula, a financial adviser in Boston with Modera Wealth Management LLC, said some clients are confronting the issue because their previous advisers put Gold Trust in their taxable investment accounts.

Avoiding ‘Headaches’

“The ideal place to hold something like that is in an individual retirement account or other non-taxable account,” Padula said. “That can save a lot of headaches.”

For taxable accounts, he prefers diversified commodities funds that carry the same capital gains rates as stocks and bonds. Commodities such as oil and agricultural products aren’t deemed collectibles.

Investors reach the top capital-gains tax rate if they make $400,000 or more annually, or $450,000 for married couples. Individuals earning more than $200,000, or $250,000 for couples, must also pay a 3.8 percent investment income tax as a result of the 2010 health-care law.

For the highest earners, that may mean capital gains on gold ETFs are taxed at 31.8 percent.

Gains from mining company stocks or funds would be taxed at the lower rate, like other equities.

Gold sellers can consider offsetting gains by selling investments that are down, or make charitable donations by transferring the ETF shares, Padula said. Donated shares don’t incur any capital-gains tax, he said, and the giver may be able to deduct the full value of the shares against taxable income.

To contact the reporters on this story: Christopher Condon in Boston at ccondon4@bloomberg.net; Margaret Collins in New York at mcollins45@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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