5

Is buying / selling goods for gold / silver taxable? If yes, what's the rationale behind this?

  • 1
    You're engaging in a barter transaction, and such transactions are taxable at fair market value. – John Bensin Jul 30 '13 at 11:03
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    With very rare, and almost always temporary (until the next legislative session), the answer to: "Am I smart enough to outwit the taxman." is "No.". – Dan Neely Jul 30 '13 at 13:10
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Of course. The rationale is exactly the same as always: profit is taxed. The fact that you use intermediate barter to make that profit is irrelevant.

To clarify, as it seems that you think it makes a difference that no money "changed hands".

Consider this situation:

  • You produced item X, which cost you $100 to produce.
  • You have 100 of those in stock.
  • You priced each item X at $200 in your store.

So far your cost is $10000.

  • You sold 100 units of item X to a customer who paid you with gold coins worth $20000. How did the customer come up with the amount of gold? Easy: converted your price for the items based on the current gold spot price, whatever it is.
  • You didn't get any $$$, you only got some gold coins, but the value of the gold you got is "accidentally" exactly the same as the value of $$$ you would get had you sold your merchandise for $$$.

How will the tax authority address this? They will look at the fair market value of the barter. You got gold worth of $20000. So from their perspective, you got $20000, and immediately exchanged it into gold.

What does it mean for you? That you're taxed on the $10000 gain you made on your product X (the $20000 worth of barter that you received minus the $10000 worth of work/material/expenses that you spend on producing the merchandise), and that you have $20000 basis in the gold that you now own. If in a year, when you plan to sell the gold, its price drops - you can deduct investment losses. If its price goes up - you'll have investment gain.

But for the gain you're making on your product X you will pay taxes now, because that's when you realized it - sold the merchandize and received in return something else of a value.

  • Profit? What profit? :) I was paid in gold, and I don't have plans to convert it to fiat for a year, or so. – vi.su. Jul 30 '13 at 6:46
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    @vi.su. who cares about your plans? I'm not sure I understand your confusion. If instead of gold you were paid in USD, would you think of asking the question? So instead of USD you were paid in gold per the current spot price, what does it matter wrt the tax calculations? Makes no difference whatsoever. Tax-wise consider it as "I sold something for USD and immediately bought gold with it". – littleadv Jul 30 '13 at 6:48
  • There's no USD involved, and I've no USD now to pay enough sales tax. Per sale, I'm at a loss because I bought the good for USD, or spent USD producing it.. – vi.su. Jul 30 '13 at 7:07
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    @vi.su. whatever the currency you use in your country. You got the idea. The tax authority will look at the fair market value of your transactions, and will assess the tax accordingly. What with you paid or were paid exactly is of no importance. – littleadv Jul 30 '13 at 7:20
  • let us continue this discussion in chat – vi.su. Jul 30 '13 at 7:40
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What you are doing is barter trade. Most countries [if not all] would tax this on assumed fair value. There are instances where countries may relax this norm in border areas for a small amount.

Barter is not just for gold – one can virtually do this for any goods, i.e. sell garments in exchange for oil, sell electronic chips in exchange for consumer goods, etc. Quite a few business would flourish doing this and not exchange currency at all, hence the need for government to tax on the [assumed / calculated / arrived/ derived] fair value. A word of caution: at times this may not be fair at all and may actually cost more than had one done a transaction using currency.

3

This isn't new. Even before silver hit $50 in 1980, silver coins were worth 3-4X face value for 'junk' silver.

There were people writing articles on how one could sell their house and specify a lower price, but paid in silver coins. Since silver coins have a face value, it was suggested that this was a legitimate process.

These people also suggested that if you paid your tax bill in silver coins, the IRS won't credit you for for than face value, ergo, the deal was legit.

As littleadv responded, it's barter. And barter is taxable. And once again, "if it quacks like a duck...."

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