Exchange-traded funds backed by precious metals are considered collectibles for tax purposes. That may mean a higher tax bill on capital gains.
The capital-gains tax issue applies to investors who buy an ETF in a taxable brokerage account. But holding a precious-metal ETF in an individual retirement account sidesteps the issue.
Long-term capital gains taxes on collectibles work differently than those of stocks, bonds and other investments. Stock investors generally pay one of three tax rates on their profits — 0%, 15% and 20%, the top rate — based on their income. These rates are preferential with respect to an investor's regular income tax rates, of which there are seven .
Conversely, the capital-gains tax rate on collectibles aligns with these seven rates, up to a 28% maximum. That means an investor whose annual income puts them in the 12% tax bracket would pay a 12% tax rate on their collectibles profits; an investor in the 37% bracket would be capped at 28% on their collectibles profits.
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