anyone tax savvy on gold?

[web_diva]

I am interested in buying some holdings in gold funds (GLD, IAU, GTI, SGOL, etc) and am concerned about the tax implications.

1.  Is gold best held in a taxable (brokerage) or tax-exempt (Roth) or tax deferred account (401k, IRA)?
2.  I understand gold can be treated for tax purposes as a "collectible" in the worst tax case and am trying to avoid that if possible. I understand if a fund's gold holdings are outside the US, it can be considered a "Passive Foreign Investment Company" and then it may be taxed at one's regular income tax rate?
3.  How can I evaluate a fund to know how it will be treated for taxes?
4.  Will I need to fill out tax form 8621 every year and what will that do for me? Some other form?

Can anyone who has knowledge/experience please shed some light?

[craigr]

I can only speak to some of these questions.

First, gold has no interest or dividends so it is the last thing you want to put in tax-deferred/tax-exempt space. Fill that space with your bonds and stocks as they need the constant protection. Even if you can fit gold and the other assets in 100% tax-advantaged accounts, you probably don't want to for emergency access reasons. Best to keep some that you can get to quickly if you must.

Second, the collectible rate is the lesser of 1) your marginal tax rate or 2) 28% rate. Most people are not going to hit the 28% rate with gold.

Third, the portfolio rarely has to sell gold except for rebalancing. Expect to maybe to do it ever couple to every few years at most. This greatly reduces the tax load.

The status of the 8621 declaration on some foreign gold funds is an area of debate in some circles. I'd talk to an accountant to find out current IRS interpretation of these funds. Others here have more experience and insight into this topic.

[steve]

I have GTU in taxable account and file forms 8621 and other required documents each year. It only takes me a couple of minutes to do this, so it really is no big deal. The drawback as far as I know is you can not efile your income tax. Filing the proper paperwok enables you to pay tax on a sale as a regular long term gain and not at the collectable rate if you hold for more then a year. I do my own taxes and avoid accountants. I call or write the IRS when I have any questions.
I really haven't seen any debate other then if the additional Form 8938 has to be filed if you hold over a certain threshold and again that would take less then a minute to fill out.

[Reub]

Steve, I have a large holding in GTU in a taxable account, as well. What other tax forms are required to be filed besides 8621 and 8938?

[steve]

Steve, I have a large holding in GTU in a taxable account, as well. What other tax forms are required to be filed besides 8621 and 8938?

This is how I do it: The first year I bought it I file form 8621 and make the QEF election then I attach the following information to Form 8621. This information includes:
The number of shares in each class of stock owned by the shareholder at the beginning of its tax year;
Any changes in the number of shares in each class of stock during its tax year and the dates of such changes; and
The number of shares in each class of stock at the end of its tax year.
Also attach PFIC ANNUAL statement found on GTU website   http://www.gold-trust.com/
under Gold Trust financial
As far as form 8938 the threshold depends on you filing status: For a married couple living in the United States and filing a joint return you fill it out if the Holding is over 100K at the end of the year or was over 150k any time during the year. You can check IRS website but I think single or married filing separately is 50k at year end or 75k any time during the year.
Summary
File :
Form  8621 along with attachment to form
After the first year it is the same accept you don’t have to make the election because it carries over but you still fill out the part of the form that applies
Also send in PFIC annual statement for US citizens
Send these items in with your tax return
And form  8938 if it applies.
I could send you a sample if you need it.
I just found out after a long wait from the IRS that form 8938 does not have to be filled out if it is held in a US  brokerage account.

[steve]

this would be a sample attachment:

ATTACHMENT TO FORM 8621
Name of passive foreign investment company (PFIC) or qualified election fund (QEF):
Central Gold Trust (GTU)
Address: 55 Broadleaf Crescent
Ancaster, ON L9G 3P2
Canada
Taxpayer Name: John Doe
Taxpayer ID Number: xxxx-xx-xxxx
Number of shares owned of each class – Beginning of year = 0 shares
Shares acquired during the year:
(include amount and date of each transaction)
June 7 2006
acquired
1000 shares units
Shares disposed of during the year = 0
(include amount and date of each transaction)
Number of shares owned of each class – end of year:
total shares = 1000 shares units
Additional Information Required
A shareholder of a PFIC must attach certain information to Form 8621. This information includes:
• The number of shares in each class of stock owned by the shareholder at the beginning of its tax
year;
• Any changes in the number of shares in each class of stock during its tax year and the dates of
such changes; and
• The number of shares in each class of stock at the end of its tax year.

[Reub]

Thanks for that, Steve!

[steve]

Steve, I have a large holding in GTU in a taxable account, as well. What other tax forms are required to be filed besides 8621 and 8938?

I recently spoke to Joe Henderson at the IRS and form 8938 does not need to be filled out if GTU is held in a US brokerage account. I waited a long time before I finally got an answer to that question, supposedly in a few weeks this info will be on the IRS web site. 8621 form still need to be filled out , so really nothing has changed.