Silver is a promising investment. Prices have been neutral for quite some time and the futures market is showing minimal downside to what many believe is an undervalued investment. A price breakout would be big news for anyone with significant silver holdings.

But before you start investing, you should understand the tax implications of owning precious metals. Here’s a quick rundown of the most important things you need to know about taxes and silver.

Capital Gains Taxes

Capital gains are the profits you earn when you sell a capital asset, including real estate, fine art, shares, or precious metals. How these taxes are charged depends on several factors, such as how long you’ve held the asset and whether or not you’ve had capital losses recently. Short-term gains can be taxed as income up to 37 percent, while long-term rates are considerably lower, favoring long-term growth.

In the U.S., precious metals including gold, platinum, and silver are considered capital. There are several important factors to keep in mind:

a) These taxes are not collected until you sell your assets, i.e., you don’t owe money just because your investments have appreciated in value.

b) There are strategies you can employ to reduce your tax bill when you do sell.

How to Avoid Paying Large Taxes on Silver

#1 Determine Your Cost Basis

The first step is figuring out how much you could owe. Determine your cost basis (the original cost of the precious metals) and subtract that number from the proceeds to figure out your taxable profits (i.e., capital gains). It helps write down the cost when you initially bought the silver.

#2 Buy Silver in Your IRA

By including precious metals in your IRA, you not only diversify your retirement portfolio, you also give yourself a tax advantage. Depending on whether you use a traditional IRA or a Roth IRA, you can avoid taxes on either the money you invest in silver or the money you withdraw in retirement. With a Roth IRA, you avoid paying the taxes when you cash out, potentially when you need it most. You can even buy silver online as part of your IRA.

#3 Invest Long-Term

Assets held longer than a year carry lower tax burdens than short-term capital assets. Depending on factors such as your taxable income, you can pay as little as 0, 15 or 20 percent, though as noted above, rules exceptions exist for collectables that can be charged at 28 percent.

#4 Carry Over Losses

There are other ways to reduce your capital gains, though, such as carrying over losses. If you have had a year where your net capital losses exceed your deduction limit, you can carry the loss over and deduct it from next year’s return.

#5 Reinvest in Under Performing Dividends

If you’re selling because gold or silver has had an exceptional year, you can reduce your tax bill by reinvesting in under performing dividends. Not only will this reduce your tax bill, but it can be an effective way to retool your portfolio and pick up shares at a discounted rate when markets are in turmoil. Falling share prices are usually a great opportunity to earn down the line.

Understanding the taxes on silver can seem intimidating at first, but you will quickly learn the ins and outs. Investing doesn’t have to be intimidating. Work with an expert and teach yourself the basics, such as how capital gains taxes work.

 

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