Rumpelstiltskin Revisited

It turns out the Rumpelstiltskin is not the only strange demented creature who wants to take possession of your first born child. A recent article posted on MSN Money by Jeff Schnepper reminds us that the greedy dwarves at the IRS want a portion of your gold. Turns out that gold, silver, rare coins, works of art, antiques, and similar items are considered collectibles by the Federal Tax Statutes. This would include my holdings in GLD. Who would think that a fund bought and sold on the New York Stock Exchange would be considered a collectible?

Collectibles are taxed at a different rate than normal investments. If you purchase shares of stock and hold them for at least a year, any profit you might make is taxed at the capital gains rate of 15%. If you hold your gold shares for at least a year, it is taxed at a rate of 28%. Ouch! An asset held for less than a year and sold for a profit is considered a short term gain by the tax code. It will be taxed at your regular income rate, as much as 35%.

Because of this discrepancy in the tax code, over the last year, you would have ended up with more money in your pocket buying and selling a NASDAQ index fund rather than gold even though gold dramatically outperformed the index fund.

I don’t worry as much about taxes as I should. I am conscious enough to keep my tax free bonds in my taxable account, but beyond that I don’t spend a lot of time considering the tax consequences of my actions. I plan on doing most of my selling after I retire. Then my income and my tax rate will be lower than it is today. If I sell something today, it will be because I have made a lot of money and don’t want to get too greedy or because I have lost money on an investment and want to call it quits. I think it a good idea to first focus on ways to make some money that can be taxed. Then just be thankful that your increase has given Rumpelstiltskin and his relatives at the IRS something to tax.

Lyrics from Taxman, a song by the Beatles

Let me tell you how it will be
There's one for you, nineteen for me
Cos I'm the taxman, yeah, I'm the taxman

Should five per cent appear too small
Be thankful I don't take it all
Cos I'm the taxman, yeah I'm the taxman

If you drive a car, I'll tax the street
If you try to sit, I'll tax your seat
If you get too cold I'll tax the heat
If you take a walk, I'll tax your feet

Taxman! Cos I'm the taxman, yeah I'm the taxman