@kjs94gt wrote:
Final question: since I've never dealt with buying/selling gold bars, explain to me like I'm 5 years old:
When we do sell in the near future, how would the IRS even know what we've sold and why would I need to report it?
Because the income tax system is mostly run on the honor system. You expect your neighbors to be honest and pay what they owe, and in return, your neighbors expect you to be honest and pay what you owe. In most cases, a coin dealer will not be required to issue you a 1099 or other tax statement reporting the sale, so you are on your honor to report the taxes.
There is a banking requirement that banks report transactions over $10,000. This is automatic, but the information goes to the IRS and can trigger an audit, although no one quite knows how the selection system works. If you sell more than $10,000 worth of the gold and split the bank deposits up into several smaller deposits of less than $10,000 each, that is a separate crime called "Structuring" which is illegal even if the underlying transaction is perfectly legal. Penalties can include forfeiture of the structured deposits.
And of course there is the threat of audits and penalties. The penalties and interest for under-reporting your tax is about 1% per month, retroactive from when they catch you to the filing deadline when you should have paid the tax, plus an additional penalty of 25% or more if they allege the under-reporting of tax was deliberate fraud instead of an honest mistake.
The IRS method for selecting returns for audit is secret. But let's suppose two scenarios.
1. You don't report the sale at all, but you have a large cash deposit into your bank account. Someone might get curious.
2. You report the sale and a large amount of sales proceeds, say $50,000. (That's only 25 ounces today.). But you report that all the gold was bought in 2019 for the same price, so you don't actually owe any tax. That might be normal for a gold speculator, but if you have never shown any interest in such trading before, that might also get someone curious.
