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The annualized after-tax return on the gold coins is the lowest--about a percentage point lower than the gold mutual fund, which receives LTCG treatment.
With some planning, investors can keep more of their gold returns by investing in gold that receives LTCG treatment or by placing the investment in an IRA.
Gold and all collectibles have the ultimate disadvantage of gains being taxed at the higher collectibles tax rate, with losses being first used to offset capital gains, which may be taxed at the lower LTCG rates.
Central Fund of Canada (CEF) (GG) Central Gold Trust (GTU) Gold Mutual Funds First Eagle Gold Mining ETFs Market Gold (SGGDX) Tocqueville Gold Vectors Gold Miners (GDX) (TGLDX) Market Vectors Junior Gold Miners (GDXJ) Exchange-Traded Notes UBS ETFs/Futures Contracts ETRACS CMCI Gold (UBG) RBS PowerShares DB Gold Fund (DGL) Gold Trendpilot ETN (TBAR) ProShares Ultra Gold (UGL) Exhibit 2 Tax Rates and Rate of Return Emma Lucas Marginal tax rate upon 33% 25% initial investment Marginal tax rate upon 28% 15% sale and distribution Long-term collectibles 28% 15% tax rate upon sale and distribution LTCG tax rate upon 15% 0% sale and distribution Before-tax annual return.
When faced with the need to estimate the effect that large LTCGs may have on a client's tax obligations, tax advisers need to use the following guidelines.
Exhibit 3 above presents Federal tax rate estimates for single, HOH and MFJ taxpayers at varying income levels and LTCGs (assuming standard deductions).
Practitioners in jurisdictions with state or local income taxes on LTCGs (particularly in high-tax states) need to increase the estimates of tax due by almost the full state and local tax rate percentage, because the AMT disallows the deduction.
* Tax advisers can provide clients planning sales, with an estimated percentage of the additional Federal tax that would be due on prospective LTCGs under different scenarios.
The JGTRRA LTCG rates are also used to compute a taxpayer's AMT liability under Sec.
The following examples illustrate the problem for a tax year beginning in 2005 under different filing statuses and various LTCG amounts.
The incremental tax on the LTCG is the difference between what S would have paid on her regular income without the LTCG, and the total she will have to pay including it.
Adding the LTCG and calculating AMT (assuming no tax preference items) results in the following: AMT calculation Taxable income $375,000 Addbacks: standard deduction 5,000 personal exemption 0 (phased out) AMTI $380,000 Less: AMT exception 0 (phased out) Less: Capital gain $300,000 AMT base $80,000 Tentative tax (TMT): $20,000 ($80,000 x 0.26) Plus: capital gain tax $45,000 Total TMT 65,800 Less: regular tax $60,000 AMT $5,293
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