PRECIOUS METALS

Overview

 

According to many investors, buying precious metals -- whether in coin or bars -- is the safest bet. Most gold bullion coins are legal tender, which means the nominal face value allows you to take them across borders without paying taxes or fees, which is not the case with bullion. However, except for states with no sales tax (e.g. Arizona, Montana), you pay a sales tax on gold. Furthermore, if you invest in gold and later sell it at a profit, you will have either a long-term or short-term taxable gain, just like any other investment.

 

Authenticity

 

Be sure the gold you purchase is authentic. Both bullion and coins should be stamped with a maker's mark and statement of weight and fineness. Even if the gold doesn't have some sort of certificate authenticity, with methods such as the acid test, it is quite easy to test if it's authentic. Nevertheless, there are counterfeit gold coins, but it's fairly common sense to tell if it's real or not -- just hold it in your hand.  Above all, it's important that you buy from a trusted supplier, so be sure to do your research.

 

Reporting Requirements 

 

Federal reporting requirements for gold purchases and sales has long been a confusing issue. Generally, bullion transactions are not reportable. However, you may have to report the purchase to the federal government depending upon how you choose to pay for it. There are no requirements if you pay with a personal check, credit card, or bank wire. But there are reporting requirements if your purchase price is over $10,000 and you pay with actually currency such as cash, money orders, cashier’s checks, or travelers checks.

 

Moreover, if you purchase more than $10,000 worth of bullion in actual currency, the dealer is required to submit IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. Keep in mind that this document is required for all cash transactions over $10,000. 

 

Some investors try to skirt the IRS reporting requirement by "structuring", which is making multiple smaller purchases over a period of time. This is illegal. Not to be out-smarted, Uncle Sam lumps the separate transactions into essentially one transaction (even if it's done on separate days), which means it still has to be reported. Simply stated, if you want to avoid the IRS reporting requirement, don't buy in actual currency -- use a credit card, write a check, or wire the money.

 

Also, per the 2001 Patriot Act, financial institutions -- including coin dealers -- must have a reporting obligation if they suspect suspicious activity and/or transactions. They'd have to fill out a Suspicious Activity Report (or SAR), which is a document that financial institutions file with the Financial Crimes Enforcement Network (FinCEN) if they supect any money laundering or fraud. However, there is no objective criteria as to what constitutes "suspicious activity." 

 

Keep in mind that there are also money laundering regulations that requrie coin dealers to obtain the names of all customers engaging in cash transactions above $3,000-$5,000. No filing is required; however, the coin dealer must have the information on file should the IRS make an inquiry (which is infrequent). Unless your transaction is flagged as suspicious, you can reasonably expect that nothing will happen to you.

 

 

 

 

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