GLD (SPDR Gold Shares) and Taxes

[statsguy]

We own GLD in a taxable account. There has been a lot of discussion of gold and GLD but I have not seen anything about taxes... so I thought I would share this.

GLD is structured as a grantor trust, not a mutual fund. This means that GLD is treated the same as owning Gold bullion and taxed as a collectible. If you hold over a year long-term capital gains will be taxed at 28%; and if you hold under a year short-term capital gains will be taxed at your marginal tax rate.

Usually long-term gains are better than short-term gains. But in the case, of a married couple filing jointly making less than $137,050 (from 2009 tax year) their 25% marginal rate will apply to short-term gains in GLD. For someone in this situation selling GLD before owning it one year will save a little in taxes.

Also, it seems to me you can sell GLD in the morning and buy GLD it back later in the day to claim your short-term capital gain.

Collectibles are not subject to the wash sale rule. I doubt many have lost money in GLD recently but say you wanted to book a capital loss, you could sell GLD in the morning and buy it in the afternoon (assuming you wanted to continue holding).

For those lucky enough to be in a marginal tax rate of more than 28% then you should know that GLD (all collectibles in fact) is taxed a a maximum of 28%... so you should hold for long-term.

I am not a tax professional... in other words, as always my posts are worth at least what you paid for them.

Stats

[Langkawi]

The biggest problem with holding GLD in taxable is the fund's monthly sale of physical gold in order to pay the fund's expenses. Quite an accounting headache at the end of the year.

[statsguy]

The biggest problem with holding GLD in taxable is the fund's monthly sale of physical gold in order to pay the fund's expenses. Quite an accounting headache at the end of the year.

I don't get this? Are you saying that when I sell my shares, I need to adjust their cost basis for the expense ratio?

[matt]

If you hold over a year long-term capital gains will be taxed at 28%

It is widely repeated, but completely false, that long-term collectibles gains are taxed at a flat rate of 28%. In fact, they are taxed at a maximum rate of 28%, but no higher than your highest tax bracket. So, for example, if you are in the 15% tax bracket, the gains will be taxed at 15%, not 28%.

Usually long-term gains are better than short-term gains. But in the case, of a married couple filing jointly making less than $137,050 (from 2009 tax year) their 25% marginal rate will apply to short-term gains in GLD. For someone in this situation selling GLD before owning it one year will save a little in taxes.

As follows from above, the odds are good that the tax rate on gold gains will be the same in both years. However, if you are in the 33% or 35% bracket, you definitely don't want to trigger the gains early.

[statsguy]

thanks matt... I had read that the maximum rate is 28% but further research indicated that I would pay 28%.

Good to know that i don't need to sell and rebuy my shares each year to get my marginal tax rate.

Stats

[Langkawi]

The biggest problem with holding GLD in taxable is the fund's monthly sale of physical gold in order to pay the fund's expenses. Quite an accounting headache at the end of the year.

I don't get this? Are you saying that when I sell my shares, I need to adjust their cost basis for the expense ratio?

Doesn't matter if you sell your shares or not, the underlying gold is being sold every month and that has tax consequences. Better read this:
http://www.spdrgoldshares.com/media/GLD ... n-2009.pdf

[statsguy]

The biggest problem with holding GLD in taxable is the fund's monthly sale of physical gold in order to pay the fund's expenses. Quite an accounting headache at the end of the year.

I don't get this? Are you saying that when I sell my shares, I need to adjust their cost basis for the expense ratio?

Doesn't matter if you sell your shares or not, the underlying gold is being sold every month and that has tax consequences. Better read this:
http://www.spdrgoldshares.com/media/GLD ... n-2009.pdf

thanks for the clarification. I was aware of this... that is what I meant by adjusting cost basis for the expense ratio. I don't find this calculation very difficult and as I understand it I only need to do the calculation when I sell not at the end of the year

Stats

[xerty24]

Doesn't matter if you sell your shares or not, the underlying gold is being sold every month and that has tax consequences. Better read this:
http://www.spdrgoldshares.com/media/GLD ... n-2009.pdf

So what do I do, if anything, for my short GLD position?

PS Don't forget that you get an "investment expenses" itemizable deduction for GLD expenses too. That's every year.

[Langkawi]

I understand it I only need to do the calculation when I sell not at the end of the year

Unfortunately, that is not correct. The example on page 11 of the previously linked document shows that.

[statsguy]

I understand it I only need to do the calculation when I sell not at the end of the year

Unfortunately, that is not correct. The example on page 11 of the previously linked document shows that.

I stand corrected. I guess I should amend last year's tax form to reflect the cost of sold gold. I am not planning to amend my returns... I will await the IRS calling me for their extra few dollars in tax instead.

You know this whole calculation is making me realize how much I spend on mutual funds each year. I am more and more thinking our decision to replace our large cap value mutual funds with dividend stocks makes sense but that post is another topic.

Stats

[pshonore]

My impression was that you get a 1099B for those sales, but I could be mistaken on that. If you have an "unreported" 1099B, there's a very good chance you'll get a letter from the IRS.

[billern]

My impression was that you get a 1099B for those sales, but I could be mistaken on that. If you have an "unreported" 1099B, there's a very good chance you'll get a letter from the IRS.

You do. In some cases (ie: some brokers), you will get what they call a 'supplemental 1099' which is a second 1099 for the same account with interest, dividends, capital gain distributions, stock sale proceeds (for deemed sales to cover investment expenses), and investment expenses. Precious metal fundss, certain mortgage backed security funds, and other structured investments generate these.

[cdgoldin]

There is a plethora of misinformation in this thread.

Firstly, as eventually explained above, long-term capital gains for collectibles are taxed at a MAXIMUM of 28%. (The maximum for non-collectibles is currently 0%, 15% or 20% depending on your tax bracket. When the 28% was established, the maximum for non-collectibles was 8, 10, 18, or 20 %, depending on tax bracket and holding period).

If you have any long-term capital gains (collectible or otherwise), you calculate your tax on your income including the gains. Then you calculate it with the aforementioned rates, and a few other adjustments. Then you pay the lower of the two rates.

So, the nonsense about buying and selling to keep your holding period "short" serves no purpose.

The wash sale rules DO apply to ETF's that deal in collectibles, as your shares in these are considered to be securities.

GLD, IAU, and SLV are all taxed as a "pass-through entity", which means they pass along their costs of operation to you, and you get to take an itemized deduction for "investment expenses" (if you have enough other deductions to itemize, and enough "miscellaneous itemized deductions" to deduct them). In order to pay the trust's expenses, they sell off a small amount of gold (or silver) at the end of each month. This generates a taxable gain or loss which is also passed through to the shareholders. Your portion of the gross proceeds from the sales are reportable on Schedule-D, and (possibly) deductible as investment expenses. You need to calculate your basis in the gold (or silver) sold according to a complex formula, and subtract that basis from your portion of the gross proceeds, to arrive at your taxable gain or loss. Your basis in the investment is REDUCED by the basis of the "trust sale", which INCREASES your taxable gain when you eventually sell the shares, effectively canceling the aforementioned subtraction. Although technically incorrect, since the amounts are small, it would be reasonable to treat the "trust sale" as though there were a basis of zero, paying tax on the gross proceeds. Then you wouldn't reduce your basis, and pay the tax later. This would save a lot of record-keeping and calculations for a few piddling dollars.

Fortunately, most brokers now provide this information on your 1099, and handle your basis calculations for you. Unfortunately, since the implementation of "basis reporting" in 2012, you have to report all of these nuisance transactions on your Form 8949, and some brokers calculate them for each "lot" purchased. Thus, if you have made 10 purchases of GLD, SLV, or IAU, you will have 120 nuisance transactions to report each year. I don't know whether you can consolidate them into a single total or not. It depends whether the IRS is matching based on totals or item-by-item!

Although the EFT surely has the information and computer resources available to provide all the data you need in a compact format, they have opted to provide a ridiculously complex 10-page formula instead. Last year (2009) was the first year brokers were required to report the trust sales, so they actually provided more usable figures, saving you most of the calculations --- but they failed to explain what those figures represented, instead referring you to the complex formulae --- and they "forgot" to pro-rate them for the number of days held when there was a purchase of sale during the month! Of course, each broker does the calculations differently. Some do them by lot. Some consolidate them by month. Some fail to report them (to you, but probably NOT to the IRS).

There is no reason that the information shouldn't be reported on the regular 1099-B. If your broker issued a 'supplemental 1099', it was because they weren't prepared to report the information properly.

[matt]

The wash sale rules DO apply to collectibles.

Do you have a source from the IRS for this conclusion?

[xerty24]

The wash sale rules DO apply to collectibles.

You might double check the IRS definition of 'stock or securities', since wash sales only apply to those.

[nonnie]

Sheesh-- good thing I bought GLD in my IRA and managed to lose money on it at the same time (several years ago).

In regard to wash sales on GLD--here's some info:
""On ETFs and wash sales, there is no authority directly on point," says Roger Lorence, partner in the tax group of Sadis & Goldberg in New York, N.Y. Lorence notes that wash sale treatment depends on whether the ETF holds a basket of securities or if the ETF or exchange-traded note (ETN) is a security such as an option or debt instrument. "
""For the second kind, because of the risks of the issuer, each such ETN would be viewed as its own security with its own issuer risks," says Lorence. "With the demise of Lehman, I would take the position that no ETN that is its own security is substantially identical to another ETN issued by a different issuer, because of the credit risk of the issuer." Here an example would be switching between the iShares COMEX Gold Trust (nyse: IAU - news - people ) and the SPDR Gold Shares (nyse: GLD - news - people )."
http://webcache.googleusercontent.com/s ... clnk&gl=us

[nydad]

I understand that GTU as a closed-end mutual fund can be treated as a passive foreign investment company, and thus subject to 15% capital gains.

[matt]

Sheesh-- good thing I bought GLD in my IRA and managed to lose money on it at the same time (several years ago).

In regard to wash sales on GLD--here's some info:
""On ETFs and wash sales, there is no authority directly on point," says Roger Lorence, partner in the tax group of Sadis & Goldberg in New York, N.Y. Lorence notes that wash sale treatment depends on whether the ETF holds a basket of securities or if the ETF or exchange-traded note (ETN) is a security such as an option or debt instrument. "
""For the second kind, because of the risks of the issuer, each such ETN would be viewed as its own security with its own issuer risks," says Lorence. "With the demise of Lehman, I would take the position that no ETN that is its own security is substantially identical to another ETN issued by a different issuer, because of the credit risk of the issuer." Here an example would be switching between the iShares COMEX Gold Trust (nyse: IAU - news - people ) and the SPDR Gold Shares (nyse: GLD - news - people )."
http://webcache.googleusercontent.com/s ... clnk&gl=us

GLD and IAU are neither ETF nor ETN. They are grantor trusts. As far as I know, there is nothing from the IRS that definitively states that collectibles are subject to wash sale rules. A conservative taxpayer will assume that the wash sale rule applies, while an aggressive taxpayer may not. Perhaps there will be clarification on this matter some day. Then again, maybe not.

[chaser]

We own GLD in a taxable account. There has been a lot of discussion of gold and GLD but I have not seen anything about taxes...

There was this a few days ago.
http://www.bogleheads.org/forum/viewtop ... 873#925873

[SSSS]

Seems like there's a much simpler way to handle all this:



For added safety, get homeowner or renter insurance.

[cdgoldin]

The wash sale rules DO apply to collectibles.

Do you have a source from the IRS for this conclusion?

It's not a conclusion. It's the law: 26 U.S. Code § 1091

To clarify, when I said "collectibles", I meant ETFs dealing with collectibles (such as SPDR GLD and Ishares SLV), which was the subject of discussion. They are considered to be securities. The wash sale rules do NOT apply to (e.g.) gold or silver coins that you buy and sell.

[cdgoldin]

The wash sale rules DO apply to collectibles.

You might double check the IRS definition of 'stock or securities', since wash sales only apply to those.

Please see my reply to "Matt", above.

[Tanelorn]

Wow, this is an old thread.

It's not a conclusion. It's the law: 26 U.S. Code § 1091

To clarify, when I said "collectibles", I meant ETFs dealing with collectibles (such as SPDR GLD and Ishares SLV), which was the subject of discussion. They are considered to be securities. The wash sale rules do NOT apply to (e.g.) gold or silver coins that you buy and sell.

I'm not an expert, but I think you're wrong. Section 1091 is just the general rule for wash sales, which applies to "stock and securities". With grantor trust structures like many of these precious metal ETFs like GLD, you are a part owner of the trust and are considered to directly hold your share of the trust's holdings. Hence if buying and selling gold bars or gold futures or whatever else the ETF might hold aren't subject to wash sales (those types of assets aren't, I believe), then your holding of the ETF wouldn't be subject to a wash sale either.

To answer something else mentioned above, I haven't seen on my 1099 the small share sales that correspond to GLD selling some gold for their monthly ER but I didn't have any in 2014 or maybe they changed the reporting. If some one held GLD in 2014 and got their 1099, maybe they could say what it looks like. I just remember getting the expenses listed as an itemizable entry.

[hbgpharmd]

Would the same complicated tax treatments apply to holding a call option on GLD in a taxable account?

[sperry8]

Sorry to revive an old thread... but it is pertinent to my current tax issue.

I held GLD until Dec 2015 and then sold all of it. However, in my 2016 tax forms from VG they are listing "Investment Expense Proceeds" for GLD. Is this accurate or in error? Do I need to contact them to fix anything or just ignore? I'd hate to have an audit come my way due to some error even though I did not hold the ETF during 2016.

[Tanelorn]

Would the same complicated tax treatments apply to holding a call option on GLD in a taxable account?

Here is a good article on the many different ways gold linked assets and derivatives are taxed depending on which you invest in.

https://greentradertax.com/tax-treatmen ... us-metals/

Specifically, it suggests that options on GLD would get Sec 1256 treatment, which is a more favorable tax status afforded most commonly to most futures.

[cdgoldin]

Sorry to revive an old thread... but it is pertinent to my current tax issue.

I held GLD until Dec 2015 and then sold all of it. However, in my 2016 tax forms from VG they are listing "Investment Expense Proceeds" for GLD. Is this accurate or in error? Do I need to contact them to fix anything or just ignore? I'd hate to have an audit come my way due to some error even though I did not hold the ETF during 2016.

If you sold all your shares in GLD before 12/31/2015, there should not be any "Investment Expense Proceeds" for GLD on your 2016 tax forms. This is an error by VG (whoever they may be). If they show it under 1099-B reported, you need to report it on your Form 8949 exactly as they have, and show the entire amount as an adjustment, leaving a capital gain of zero. If they did not show it under 1099-B, but only as an information item, you can (possibly) deduct it on schedule-A, or safely ignore it. But, if you mean your 2015 tax forms that you received in the first quarter of 2016, they are correct. When you hold shares in GLD, SLV, etc., they sell small amounts of the metal each month to meet expenses. Since they are a granter trust, they pass each sale on to each shareholder on a pro-rated basis. The proceeds are reported to the IRS as the proceeds from a sale of zero shares. Prior to 2018, they are also deductible as an "investment expense" if you itemize, and have sufficient miscellaneous itemized deductions to use them. Most brokers calculate your basis in your pro-rate share of the assets sold, as well as the capital gain or loss. If they did not, you have to obtain the formula and annual tables from the ETF and do some horrendous calculations. I spent many weeks writing a computer program to handle it. Good luck.

[But don't worry about an audit. The amounts should be relatively small, unless you hold thousands of shares of GLD. So, at worst, the IRS will send you a small bill with a small amount of interest. They don't waste their time auditing the small fish anymore.]

**WARNING: IF YOU HOLD GLD, SLV OR ANY SIMILAR Granter Trust EFT VIA FIDELITY INVESTMENTS FOR 2018, THEY HAVE MADE SUBSTANTIAL ERRORS IN ALLOCATING THE PRO-RATA TRUST SALES THIS YEAR. THEIR FIGURES ARE WRONG. I HAVE REPORTED THIS TO THEM, BUT THERE IS NO GUARANTEE THEY WILL FIX THEIR ALLOCATION PROGRAM PRIOR TO ISSUING INCORRECT 1099'S ON MARCH 2ND, 2019. IF YOU ARE AFFECTED BY THIS, PLEASE CONTACT THEIR "CUSTOMER SERVICE" AND DEMAND THEY FIX THEIR ERROR. THEY MAY DO SO, IF ENOUGH PEOPLE COMPLAIN!!! OTHERWISE, WE WILL HAVE TO PAY MORE TAX THIS YEAR, AND EVERY SUBSEQUENT YEAR THAT WE HOLD THESE ASSETS --- OR SPEND SEVERAL DAYS DOING THE CALCULATIONS CORRECTLY, AND SHOWING 12 ADJUSTMENTS (FOR EACH LOT HELD) ON OUR FORMS 8949.

[cdgoldin]

I'm not an expert, but I think you're wrong....
To answer something else mentioned above, I haven't seen on my 1099 the small share sales that correspond to GLD selling some gold for their monthly ER but I didn't have any in 2014 or maybe they changed the reporting. If some one held GLD in 2014 and got their 1099, maybe they could say what it looks like. I just remember getting the expenses listed as an itemizable entry.

1) Let's say I am wrong, and you are right. ALL the brokers are treating wash sales for GLD, SLV, etc. the same way they treat wash sales for securities. So, if you want to treat them differently, and do all the horrendous calculations involved in reconciling their amounts with what you consider to be the correct amounts, and then create a red flag for the IRS to challenge, be my guest. Remember, the wash sale not only disallows the capital loss deduction, it creates a new holding period for the washed shares, which will affect all the basis and trust sale allocations until you sell your remaining shares. It's not worth fighting. A better strategy would be to sell GLD and buy AU (or vice versa) to avoid a wash sale.

2) There have been multiple changes in brokerage reporting of the trust sales since GLD, SLV and AU were created. For a few years, no broker reported them, or let you know you should be doing so. Then they reported them so cryptically that the figures given were useless (and customer service knew nothing helpful as usual). Then they reported them in summary format. Then in more detail. And finally in more detail than necessary, coinciding with the new reporting requirements, so you now have to fill out multiple Form 8949 pages to comply. When they 'just gave you the expenses as an itemizable entry", they were doing you a disservice, by not giving you the corresponding basis calculations, so you could properly report them. Fortunately, the amounts were so small, that the IRS appears to have ignored them. But you might still get a bill if they decide you were negligent, since they have 7 years to audit you in such case.

[cdgoldin]

Would the same complicated tax treatments apply to holding a call option on GLD in a taxable account?

I don't think so.The monthly trust sales are pro-rated amongst owners of shares in the granter trust (a.ka. ETF). A call option is an option to purchase shares, not ownership of shares. The tax treatment isn't complicated. It's the pro-rata allocation of the monthly trust sales that is complex.

[market timer]

And finally in more detail than necessary, coinciding with the new reporting requirements, so you now have to fill multiply 8949 pages to comply.

Why not report a single line summary entry? For example,

Description: GLD trust mgmt expense sales for FY 2018
Date acquired: various
Date sold: various
Proceeds: $400
Cost basis: $380
Net gain: $20

This would in turn reduce the basis on the existing GLD position by $380.

[cdgoldin]

And finally in more detail than necessary, coinciding with the new reporting requirements, so you now have to fill multiply 8949 pages to comply.

Why not report a single line summary entry? For example,

Description: GLD trust mgmt expense sales for FY 2018
Date acquired: various
Date sold: various
Proceeds: $400
Cost basis: $380
Net gain: $20

This would in turn reduce the basis on the existing GLD position by $380.

Because:
1) If your broker reports the detail (as Fidelity Investments does), the IRS requires you to provide the detail. You can try to submit a summary, and hope the IRS is only matching on totals, but if they are not, they can assess a negligence penalty for your failure to follow their very explicit instructions.

2) If your broker allocates by lot, rather than by asset (as Fidelity Investments does), they will report your eventual sales of shares by lot, and they will do future allocations by lot, causing you a nightmare of reconciliation.

The good news is that, since GLD, SLV and AU are "granter trusts" (as opposed to equities, mutual fund shares, or financial instruments), the brokers only report the "sales" proceeds, but not the basis --- so you simply show your basis and computed gain, not any adjustment, for each "trust sale". Of course, if the broker reports the wrong sales proceeds (as Fidelity has done this year), you must adjust your "basis" accordingly to result in the correct gain or loss, which is technically an inaccurate return.

The bad news is that, since GLD, SLV and AU are "granter trusts", the brokers only report the "sales" proceeds, but not the basis --- so, you have to show ALL the detail, and cannot summarize even if all your figures agree with the broker's (see the Form 8949 instructions).

Note that all this is the result of Congress "simplifying" the tax law a few years ago. Remember that the next time politicians and media who have never filled out a tax return say they are simplifying it.

[abuss368]

A long time ago when we traded individual stocks we invested in GLD and SLV. It was then that I learned they were considered "collectables" and not stocks as they are held in trust.

** I assumed that wash sale rules were in effect as they are considered a security and not the sale of physical coins. True the trust is selling the physical metal. Was this correct?

** I thought the maximum tax rate is 28%.

[cdgoldin]

A long time ago when we traded individual stocks we invested in GLD and SLV. It was then that I learned they were considered "collectables" and not stocks as they are held in trust.

** I assumed that wash sale rules were in effect as they are considered a security and not the sale of physical coins. True the trust is selling the physical metal. Was this correct?

** I thought the maximum tax rate is 28%.

1) They are considered "collectibles" because they are gold and silver. Since they are held in trust, it is the same (to the IRS) as if you owned them outright. If they were held in a mutual fund, they would not be considered "collectibles". But then it would be an entirely different investment.
2) Read the discussion above
3) Read the discussion above

[market timer]

You can try to submit a summary, and hope the IRS is only matching on totals, but if they are not, they can assess a negligence penalty for your failure to follow their very explicit instructions.

These figures are immaterial to my return. What's the penalty for negligence? If I'm audited and it turns out I made an error in the calculation, I'm fine with paying, say, 6% interest and a 10% penalty on whatever is due.

[cdgoldin]

These figures are immaterial to my return. What's the penalty for negligence? If I'm audited and it turns out I made an error in the calculation, I'm fine with paying, say, 6% interest and a 10% penalty on whatever is due.

If "these figures are immaterial to [your] return", why are you concerned with them?

A negligence penalty is 20% of the additional tax due. Interest on "underpayments" is currently 6%. So, let's say you have $100 gain from these "trust sales", and you fail to report it completely. You would wind up with (a maximum of) $28 tax due plus $5.60 penalty plus negligible interest. (If the gain were short term, the tax could be as high as $40.80, and the penalty $8.16). If you just report it incorrectly (i.e. by summarizing it), there might actually be no taxes and penalty due at all. But you might receive a bill from the IRS for all the "omitted" detail transactions, because they wouldn't tie them to your summary; and the net effect would be to include them in income twice. Then you could spend weeks of correspondence with the IRS trying to to straighten out the mess (or just pay the additional unwarranted bill). The biggest danger in not following the IRS instructions for providing the detail would be if they decided to assess a $5000 "frivolous return" penalty, or abuse one of their other gestapo-like powers.

In other forum discussions, a number of people claimed they have simply reported the summary totals, and not heard anything from the IRS. It may be that the IRS computers only match on the total of your 1099B's, in which case providing the detail would be unnecessary. Or it may be they match on the detail, but don't bill you if the totals match. But I still have correspondence from the IRS billing me for $0.00, and demanding immediate payment, so I prefer to have my returns 100% correct from the onset.

[Tanelorn]

A long time ago when we traded individual stocks we invested in GLD and SLV. It was then that I learned they were considered "collectables" and not stocks as they are held in trust.

** I assumed that wash sale rules were in effect as they are considered a security and not the sale of physical coins. True the trust is selling the physical metal. Was this correct?

** I thought the maximum tax rate is 28%.

No wash sales. Here's a clear explanation from a tax expert:

https://www.forbes.com/sites/baldwin/20 ... 99afa316c6

Unlike most investments, metal ETFs are exempt from the wash sale rule limiting losses on securities sold and then immediately repurchased. Robert Gordon, president of Twenty-First Securities, explains: The IRS, avid to collect the higher collectible-rate tax, has decreed that the metal funds are not “securities.” But the wash sale statute applies only to “securities.”

Example: You buy 5,000 shares of IAU for $60,000 and then see their value sink to $51,000. You sell the shares and buy them back five minutes later. Now you have a $9,000 capital loss to offset gains elsewhere (or up to $3,000 a year of ordinary income). Your eventual capital gain will be $9,000 higher than if you had stood pat, but that gain may occur decades later or never.

[cdgoldin]

No wash sales. Here's a clear explanation from a tax expert:

Self-appointed "experts" are not authoritative, especially when contradicted by other "experts", the IRS, and the broker through whom you purchase your shares in the ETF, and who treats them as wash sales (creating a record-keeping nightmare and a guaranteed audit if you don't do the same).
FYI, your "expert" has several other errors in the article you cite. And other "experts" have been incorrectly telling us that "collectibles" are taxed at 28% (rather than a maximum rate of 28%) ever since 2011, while others can't seem to understand the last three tax reform bills.

[Tanelorn]

Cdgoldin - your persistence, scare mongering hyperbole (“record-keeping nightmare”, “guaranteed audit”), and inconsistencies on this topic do a disservice to less informed readers who are just trying to understand the law so they can pay their appropriate taxes. Why should I believe you over Robert Gordon, professor of finance, founder of a firm specializing in advising on esoteric tax aspects of investments, and the go-to expert for Forbes, Bloomberg, the Wall Street Journal, etc? here’s more on his background so other readers can judge for themselves:

http://www.stern.nyu.edu/faculty/bio/robert-gordon
https://www.forbes.com/sites/baldwin/20 ... optimists/
http://www.twenty-first.com/bios_gordon.htm

You sound a lot more like the “self appointed expert” here.

1) They are considered "collectibles" because they are gold and silver. Since they are held in trust, it is the same (to the IRS) as if you owned them outright. If they were held in a mutual fund, they would not be considered "collectibles". But then it would be an entirely different investment.

You admit yourself that these commodities are held in trusts for the case of GLD, etc, so taxwise it’s the same as if you held the physical assets directly. Why is it hard to make the connections then that physical assets aren’t “securities”, as we have discussed above, and hence they’re not subject to the wash sale rules?

As for your scare-mongering about negligence penalties and guaranteed audits, you admit yourself these differences are often small, have been going on for years at this point, and no one has been reported as being audited by the IRS over this issue. A CPA and tax expert for active traders once said he’d never seen an audit based on Sch D wash sale adjustments when the 1099 headline numbers were correctly reported, and people with tons of trades and wash sales is one of his specialties. Besides, under your strict tax interpretation approach, the broker’s mistaken wash sale reporting is no excuse for you not reporting your trades correctly when it comes to the IRS.

Yes, the brokers often get this stuff wrong, they get stuff wrong all the time. I can’t count how many revisions I got to my 1099s each year as they correct more and more mistakes, but half a dozen times at least each year per broker - hardly infallible. There are clear instructions for Sch D / 8949 for how to correct mistaken basis or time period reporting from your 1099 - just use code B or T for basis and holding period errors respectively. Summary items for Sch D may not be what the IRS requests, but as long your summary entry on 8949 leads to the correct tax outcome, there’s not going to be any change in tax due even if there was an audit. All the potential interest and penalties apply only as a % of the unpaid taxes, so those would come to zero anyway.

I can understand if your suggestion was just to swap GLD for IAU or vis versa to simply your own tax record keeping, and that’s probably a good practical idea for tax loss harvesting rather than just selling and rebuying immediately. But for people who are just holding long term and getting these small expense-related trades reported wrong, it seems reasonable to me to report the correct amounts, perhaps as a summary entry, and then also report all the incorrect ones with basis adjustments to make the net profit zero on those trades. This should reach the correct tax outcome and while not omitting anything the IRS might be looking for.

[hunnypuppy]

Came across this so thought I'd post here it. Sounds authortative:

https://www.forbes.com/sites/baldwin/20 ... gold-bugs/

Unlike most investments, metal ETFs are exempt from the wash sale rule limiting losses on securities sold and then immediately repurchased. Robert Gordon, president of Twenty-First Securities, explains: The IRS, avid to collect the higher collectible-rate tax, has decreed that the metal funds are not “securities.” But the wash sale statute applies only to “securities.”

Example: You buy 5,000 shares of IAU for $60,000 and then see their value sink to $51,000. You sell the shares and buy them back five minutes later. Now you have a $9,000 capital loss to offset gains elsewhere (or up to $3,000 a year of ordinary income). Your eventual capital gain will be $9,000 higher than if you had stood pat, but that gain may occur decades later or never.

If the brokerage automatically applies the wash sale rule then I guess you can either undo it at tax time or like someone suggested, sell GLD and buy IAU instead.

That said this article has a great comparison of pro's and con's about different gold structures (ETF as bullion, futures, K-1 partnerships, K-1 free partnerships, ETN's etc). I was thinking that ETN's are ideal for the long term (vs futures for the short term) fav tax treatment but there's a minor risk of losing everything if the company issuing the notes goes under. Thoughts?

[chaser]

I only skimmed that article because I found all sorts of red flags which implies to me it is a poor article which should be ignored.

The most glaring problem is they didn't even mention the Sprott trusts (e.g. PHYS) or the granddaddy of them all, Central Fund of Canada (now owned by Sprott). These are favored by people who are very concerned about counter-party risk and also want the best tax treatment they can get (taxed as capital gains instead of collectables if you hoop jump through Form 8621 every year).

Another red flag is how they imply that Schedule K-1 is best left for tax sheltered accounts. Depending on the specifics, this could be entirely backwards. Some of these K-1s are still taxable even within sheltered accounts and will create a massive tax headache for you. And sometimes the tax benefits of a K-1 come from the fact they are in a taxable account because there are events that can raise your cost basis.

Another red flag is they suggest gold stocks are a substitute for gold. Gold stocks are an entirely different investment that in recent years have not really moved like gold and in fact have been beaten up relatively badly compared to gold. That's because they are a different investment and you really need to understand what these things are before you invest in them.

And finally, let's talk about the problems of ETNs, that Commodity Index Tracking Fund, and Futures. ETNs are constructed through derivatives, which means they are likely using Futures, options, and maybe some other kinds of derivatives. The problem with these is they have a carry cost, which can be substantial and over long periods usually cause you to lose significant value. In Futures, there are concepts called contango and backwardation which highlight how the carry cost changes as you go farther out in time. In options, there is a concept called theta, which is how fast the value of the derivative declines over time. Basically, holding derivatives, you are fighting time which is eating itself away.

Additionally, I couldn't find that ETN you mentioned. All the ETNs I've seen are usually structured for short term trading with leverage (e.g. 2x long, 4x long, -1x short, -2x short). Is there even a 1x long ETN anymore?

And by the way, that Commodity Index Tracking Fund, the second sentence of the introduction on the official page says "The Fund is designed for investors who want a cost-effective and convenient way to invest in commodity futures."


So unless you really understand derivatives, I would stay away from these products. If you do understand derivatives, then you should probably trade the futures (or options on the futures) directly yourself because you will have control over the expiration dates/contracts that may present trading (market timing) opportunities. In general, these are not designed for long term buy and hold.