Own Gold shares? Prepare to pay steep taxes

With the price of gold continuing to more upward - today it remains over $1,500 an ounce, many investors are jumping on the gold band wagon. While there are numerous ways to invest in gold, the easiest is to own a gold Exchange Traded Fund like SPDR Gold Trust (GLD) or iShares Gold Trust (IAU). Other options include owning stocks in gold mining companies such as Barrick Gold (ABX) and Newmont Mining (NEM).

But the taxation laws with respect to gold are often very confusing, as the IRS considers gold a "collectible" - which renders it subject to a higher capital gains tax rate, generally speaking.

The IRS considers gold a “collectible” and will tax your capital gains at a 28% rate. This designation includes all forms of gold (other than jewelry), such as...

• All denominations of gold bullion coins and numismatic/rare coins, gold bars, and gold wafers
• ETFs like GLD, SLV, etc. (closed-end funds have different rules; see below)
• Any electronic form of gold like GoldMoney and Bullion Vault
• Any “paper” or certificate forms of gold, such as Perth Mint Certificates and EverBank accounts
• All forms of pool gold, rounds, and commemorative coins
• And the same designation and rules apply to silver, platinum, and palladium.

Gold stocks (Barrick and Newmont, for example...) are not designated as a collectible and are therefore subject to the standard long term capital gains tax rates (15%) like all other stocks.

So while many investors may be proud of themselves for buying gold when it was less than $1000 an ounce, they will feel a significant tax pinch once those shares are sold for profit.