Summary
If you have a gain when selling physical silver (or any other collectible, or ETF backed by collectibles like SLV), it is taxed exactly as if it was earned income, except that if the gain was long-term the tax rate is limited to 28%.
Information on 28% Capital Gains Tax Rate for Silver and Gold
Most investors in silver and gold find out at some point that when selling, they are taxed as collectibles, at the maximum rate of 28%, and get quite upset! Many even decide not to pay tax when they sell, and risk serious fraud penalties. Worse, investing in ETFs backed by silver is taxed the same as physical.The truth is a bit different. The term "maximum rate of 28%" is used frequently, and it makes it sound like you are being penalized, and that the rate is always 28% (it sounds like they are saying "You have to pay the maximum rate, which is 28%"). That isn't quite the case. The "Maximum" here simply means that the most you will pay on capital gains when selling silver (or gold or other collectibles) is 28%, never higher. It could have been correctly and more accurately phrased as "The maximum the rate can be is 28%" or "The tax rate is limited to a maximum of 28%".
In the United States, all income is always taxed at a specific tiered rate -- unless the law says otherwise. And for collectibles, the law has a somewhat lower rate, which is limited to no more than 28%.
Examples
Let's say that Joe has several options for making money in the tax year in question. He lives rent free and only needs $10,000 to make it through the year. He can either work, or sell some investments. One option is to sell physical silver, another is to sell shares of Apple. In either case, they can be either long term gains (owned more than 1 year) or short term gains (owned less than 1 year). He is single, and has $9,500 in standard deductions and exemptions, using 2011 tax tables.
| Situation | Total Income | Taxable Income | Tax | Eff. Tax Rate | Notes |
|---|---|---|---|---|---|
| He works part time, and earns $10,000 for the year. | $10,000 | $500 | $51 | 0.51% | This is earned income. Little tax due, since his income is just above the standard deduction and exemptions. |
| He sells $10,000 of silver he bought for $6,000 a few years ago. | $4,000 | $0 | $0 | 0% | This is long term collectibles capital gains. No tax due, since his income is less than standard deduction and exemptions. |
| He sells $10,000 of Apple shares he bought for $6,000 a few years ago. | $4,000 | $0 | $0 | 0% | This is long term capital gains. No tax due, since his income is less than standard deduction and exemptions. |
| He sells $10,000 of silver he bought for $6,000 a few months ago. | $4,000 | $0 | $0 | 0% | This is short term collectibles capital gains. No tax due, since his income is less than standard deduction and exemptions. |
| He sells $10,000 of Apple shares he bought for $6,000 a few months ago. | $4,000 | $0 | $0 | 0% | This is short term capital gains. No tax due, since his income is less than standard deduction and exemptions. |
So we can see here that if you do not have much income (regardless of the source), it is possible to pay no taxes, regardless of the source of income.
Here's another example, where he makes more money:
| Situation | Total Income | Taxable Income | Tax | Eff. Tax Rate | Notes |
|---|---|---|---|---|---|
| He works full time, and earns $100,000 for the year. | $100,000 | $90,500 | $18,964 | 18.7% | This is earned income. |
| He sells $100,000 of silver he bought for $60,000 a few years ago. | $40,000 | $30,500 | $4,154 | 13.6% | This is long term collectibles capital gains, which are taxed at regular income rates with a 28% maximum. |
| He sells $100,000 of Apple shares he bought for $60,000 a few years ago. | $40,000 | $30,500 | $0 | 0% | This is long term capital gains. No tax due, since the $30,500 would put him in the 15% tax bracket, and the capital gains rate was 0% at that tax bracket. |
| He sells $100,000 of silver he bought for $60,000 a few months ago. | $40,000 | $30,500 | $4,154 | 13.6% | This is short term capital gains, which are taxed as regular income. |
| He sells $100,000 of Apple shares he bought for $60,000 a few months ago. | $40,000 | $30,500 | $4,154 | 13.6% | This is short term capital gains, which are taxed as regular income. |
Here, we see a more realistic example where selling the silver generates less tax than working (since the original purchase was made with money that had already been taxed). And, for short term gains the rates for selling silver are identical to selling stocks. The long term collectibles gain generates a bigger tax bill than the stocks, but is still only 13.6% (and only 4% of the $100,000 received).
What is the Tax Rate for Selling Silver?
You probably know the first step: you determine the capital gain (essentially, your profit). This is normally the price you received (after any fees, commissions, etc., if you paid any) minus the price you paid (minus fees, commissions, etc., if you paid any). So if you paid $250 for a silver bar and sell it for $300, you have a capital gain of $50.So in this case, you owe tax on $50.
Now, the actual tax you will pay isn't necessarily 28% ($14 in this case) that many people lead you to believe you owe.
The rate you pay is usually the same rate you pay for your income tax, with a maximum of 28%. Let's say you are married, with no dependent children, and earn $70,000 a year. Your first $19,000 or so of income is tax-free, allowing you over $88,000 of income at the 15% tax bracket. So the $50 profit would get taxed at the 15% tax rate, not 28%. Selling the bar for $300 would generate a tax of $7.50.
Who Pays 28%?
The only way that you would actually pay 28% would be if you are in the 28% tax bracket, which (for married filing jointly; $85,600 for an individual) starts at $142,700/year (after deductions, so perhaps $150K-$180K or more). So you have to be making a good amount of money to actually pay the 28% rate.
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