Gold is not money
I drive men crazy for love of me.
Easily beaten, never free.
It’s me?
You are gold, of course.
In fact, metal is many things to many people. But one thing is not: money.
That is a surprise to some people.
Over the years, in letters from readers about acquiring, transporting, or storing gold, I have noticed that many people assume that gold is money. From there they extrapolate all kinds of false conclusions about how they should manage their metal ownership.
Some even miss out on great opportunities as a result.
Gold is not money … and that makes a huge difference when it comes to wealth management strategies …
What is money … and why is it important?
Those of you interested in bitcoin probably know about the long-term debate over whether virtual currency is a form of money or a non-monetary asset.
Government agencies, the IRS, and the courts have grappled with this issue from time to time. It is important for a number of reasons … all of which apply equally to gold bullion.
Money, legal tender issued by a sovereign authority such as the US government, including gold coins of par value, is not considered an asset. It is just a store of value, a unit of account, and a medium of exchange.
Because governments issue money, governments have a unique interest in policing it … such as when you carry it in or out of the country, or store it in a foreign financial institution, or use it for a large transaction. That is why they place such strict reporting requirements on you.
On the other hand, governments do not normally tax the appreciation in the value of money. If you have an account denominated in Swiss francs and its value increases against the dollar, increasing your purchasing power, it is not considered a capital gain.
The same would apply to bitcoin, or gold, if forms of money were considered … hence the debate.
The bullion advantage
But gold bullion, gold that has not been minted in legal tender, that it is treated like money – it’s an asset, not money, and that matters … a lot.
Let’s go over some of the key differences.
- Gold bullion purchases should not be reported to the US government. Many people think they are. This is because if paying in cash or a cash equivalent for $ 10,000 or more in bullion, the merchant must file IRS Form 8300, “Report of Cash Payments Over $ 10,000 Received at a Trade or Business.” . However, this requirement is not specific to precious metal purchases. It applies to all cash transactions over $ 10,000, no matter what you are buying. If you buy bullion with a credit card, you don’t need to tell Uncle Sam.
- You don’t have to declare gold bullion when you bring it in or out of the US, as you do with currency. It is true that this is a complicated subject, and many people advise you to play it safe and declare it anyway to avoid problems. But technically, gold bars are like any other personal property: furniture, a car, etc. – and cross-border movements do not have to be reported if the value exceeds $ 10,000, as is the case with any form of currency (including legal tender gold coins).
- You are not required to report gold stored outside of the United States. Whether you keep it in a safe deposit box or a private vault, gold bars are considered personal movable property, an asset that is no different from jewelry, works of art, or anything else of value. On the contrary, if you are holding money in a foreign financial institution, you face all kinds of onerous reporting requirements, such as the Foreign Bank and Financial Account Report (FBAR) and the Foreign Account Tax Compliance Act (FATCA).
- You report and pay capital gains tax on gold sales, but you can also deduct losses. The IRS classifies one billion gold as a collector’s item. That means the proceeds from your sale can be taxed at the maximum capital gains rate of 28%. The actual rate you pay is determined by the amount of time you’ve owned it and your ordinary income tax rate. You should report capital gains from gold sales on Schedule D of Form 1040 and pay the tax when you file. Conversely, if you sell gold bullion at a loss, you can potentially offset other capital gains or even ordinary income.
The universal asset
Looking at gold bullion as an asset rather than a financial instrument illuminates its role in wealth management strategies.
Many people successfully speculate on the movements of gold prices. Some even invest in funds like SPDR Gold Trust (NYSE Arca: GLD). (Although that doesn’t count as owning gold in my book, it’s just paper.)
But by far the bulk of the world’s gold bullion is doing precisely what assets should do in any smart wealth management strategy: storing value safely over the long term as a hedge against the traps and arrows of the money. markets in financial instruments such as stocks, bonds. and the like.
Gold bars are the ultimate “set it and forget it” strategy. If you haven’t already “configured” it by accumulating some of the yellow metal that “conducts[s] men crazy for my love, “now is the time to start.
