In the past, if a business had some sort of independent contractor do some work, the business had to report the payment (if over $600) on the 1099. Under the new law, ANY money a business spends in excess of $600 must be reported.
If a business buys $600 worth of paper for their printers, they have to crank out a 1099. Buy a new phone system, security cameras or new furniture and you have to complete a 1099. It's insane.
Obviously, this is going to impose a huge burden - and expense - on business. Of course, that expense will be passed along to the consumer.
That's not the real "ugly" part of this, though.
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Historically, individuals and companies that sold precious metals had a requirement to report their own sales transaction when it reached certain thresholds. As you can see (click), they were pretty high thresholds. YOU had to report the sale of YOUR precious metals, not the buyer of your PMs.
That is all going to change. Radically.
Going forward, as with any purchases made, the precious metals buying business will be required to report the transaction if it is in excess of $600.
The responsibility for issuing forms kicks in at $600 for coins or bullion – not a very high level and one that has already started sounding alarm bells. It doesn’t matter in what form payment is made, whether cash, check, credit card, or Yap stone money, the $600 threshold applies.Disturbing, to say the least.
Uhm, does anyone think that the IRS will focus extra attention on the 1099's produced by coin shops, pawn shops and jewelry stores?
Yeah. They're going to want to know of anyone that had money come their way.
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So, what will the reaction be by business and the American public?
The most obvious will be the sudden explosion of the black market. If people need to sell a bunch of PMs, they'll do it off the books. These people know that if they sell $12,000 in gold, the IRS is going to want their piece of the pie. They'll sell their gold and silver under-the-table at a discount to market prices, but that discount will be less than what they would have to pay in taxes.
Expect some sort of crack-down on places like Craigslist or other similar sites.
You'll also see an increase in the number of transactions that are under $600. It will be like the $10,000 cash transaction limit at banks right now. People will do what they need to do to "stay off the radar".
I'm guessing this may lower the price of gold and increase the price of silver. Not by huge amounts, but I see a narrowing of the Gold To Silver Price ratio (right now it's about 67:1 per ounce).
It will clearly increase the premium paid for "fractional gold" - 1/10, 1/4 and (maybe) 1/2 ounce gold pieces. As long as the piece of gold is less than $600, it will be more desirable. The one ounce coins might take a bit of a beating.
My guess is that the IRS will eventually require the "taking of seller information" for all PM transactions, regardless of the amount. The government needs to know how all forms of money are used. If they can't track the money, they can't get their taxes. They can't do that with cash or with PMs - for now. Expect them to fix that oversight.
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A congressman from California, Dan Lungren, is trying to get this law changed for precious metals. I don't give him a high likelihood of success, since the IRS believes this will be a $17 billion per year tax bump for the feds.
Accept The Challenge
You, as a purchaser of precious metals, need to keep good records. Every time you buy PMs, be sure you retain the receipt. That is the "basis" the IRS will use for determining any taxes owed. Sales price minus purchase price (basis) equals taxable income amount.
I'm guessing that without the ability to show the basis for the purchase of the PMs, the IRS would hit you for taxes based on the entire sales prices.
Honestly, I'm still trying to digest this and come up with a strategy. I want to assume - at least for now - that this law will be enacted with no changes.
Any thoughts on the subject would be appreciated.
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16 comments:
Chief,
I'm afraid that, given time, they will charge us a tax for every breath we take.
As for my stash of PMs... I lost the whole lot, last week, in the middle of a lake as the result of a boating accident. And here I thought it would be safer with me than if I'd left it home alone. Damn my bad luck all to hell.
MikeH.
Mike, I hate when that happens.
I've got a bunch of stuff I may have misplaced myself. Things that go boom and things that sparkle in the light.
I'm sure they're around here somewhere - I just can't seem to put my hands on them right now. I need to be more careful. I must be getting old and forgetful...
A generous application of lead at the right point and time would doubtless result in a solution to the whole problem.
Curious Chief, do you know if the requirement is related to the value of $600 or the exchange of US$600 (cash, check or credit)? The reason I ask is if an area had its own currency how would they assess the value in US$?
Guns, easy now, easy! ;-) Although... lead IS a PM in my eyes.
Joseph, I'm not really sure. If you're a business and you "buy" something under a barter-like scenario, I'm unaware how they assess a value.
I'd assume that you need to assign a US dollar cash value to those types of transactions if you reported them like a "good taxpayer" should to the IRS.
But it's just a guess. I dunno.
It will create a black market for PM. The law of diminishing returns trumps tax law. This is why cutting tax rates increases tax revenues and creates an economic boom. It is also why our current keynesian style economic plan won't bring us nirvana. We may "come out" of the recession but it will be subdued.
Damn the bad luck. My kid got a hold of my junk silver and bought a bunch of crap at face.
Precious metals? What precious metals?
The only "work-around" I see is to go with the black market, if one was in the position to possibly, maybe, exchange some of that metal for other items of an undetermined value.
I learned something in science in grade school. The harder you squeeze mercury the more will slip through your fingers. It is a lesson governments NEVER learn.
Anon, yep, the black market will thrive. It's the purest form of capitalism and has blossomed under every socialist scheme ever imposed on people. We'll be no different.
I see the economic policies actually making the recovery virtually non-existent. The more we spend, the deeper the whole, the bigger the bill we'll have to pay. When inflation hits hard, our national debt - largely financed right now with short-term T-bills - will cause interest payments to skyrocket, requiring more taxes and the vicious cycle will repeat.
Crusty, when I was a kid in the 60's and 70's, one of my grandmothers would swipe silver coins from my grandfather's stash and give them to me. I'd go straight to the store and buy candy - at face value!
I feel your pain...
jjmurphy, yeah, people will always find a way around taxes they feel to be unfair. Socialist economic theory has always failed because of this. The system always ends up starving itself.
It was my understanding that the $600 threshold was for a TOTAL of transactions to a certain business/individual during the entire year....
Which would mean either a setting up of multiple companies to spend $599.99 at each or going from merchant to merchant...
I may be wrong, but it could be worse than you thought...
Taxes are certainly one aspect, but like guns, there's also the "we know what you have" aspect. Never forget three things - FDR made it illegal to own gold in other than the form of jewelry, and the North Koreans recently simply called in all their fiat money and issued a limited amount to each person. If you had the "old" fiat money, it was worthless. And lastly, due to gun registration, the Nazis knew who had weapons.
Seemingly unrelated facts, but things to keep in mind.
By the way...interesting option suggested by some anonymous source - if you're interested.
Buy your new weapon, following all legal precepts. Register weapon as required.
Within some period of your choosing, leave your vehicle in some parking area, break a window, call police and report your vehicle has been broken into, and your weapon stolen.
It will cost you a new window.
I'm glad someone thought of it - I'm not devious enough to come up with an idea like that...!
Pearls,in my old banking days, when we set up a vendor, our A/P system would aggregate all payments to each, and if it was a 1099-able vendor, it would spit out a form for the total year.
So you're probably right, that's what will be expected with the new system. I've got to believe that some small business group is going to scream bloody murder about this, and get some sort of exemption. I'd guess, though, that coin shops, jewelry stores and pawn shops will not be exempted, so it will be Black Market City!
A thought: We might be able to use illegal aliens to our benefit. Since most of them don't have Social Security Numbers and US identification, it would certainly be racist and discriminatory to not allow them the ability to sell their gold and silver...
suek, I think all of your examples are VERY related. It's all about infringements on our right to privacy. We're in essence forced to turn ourselves in - testifying against ourselves. If the law changes and something is now illegal (like guns, gold, silver, ammo, etc) they use these lists like To Do lists to gather everything up.
I've read similar suggestions about a rash of "robberies" suddenly happening once a certain personal possession becomes illegal.
Sounds like a number of people are thinking along the same lines...
Probably true...here's another thought, though ...
I was going to link to the article, but it really has more to do with "how much do you want to spend on a weapon" so here's the relevant quote:
"If you have to use it [your weapon of choice] to defend yourself, the police will confiscate the thing anyway. If you are cleared of any wrongdoing, you might get it back in a month or so. If there are charges filed, such as assault and attempted murder charges leveled against any survivors amongst your attackers, then they will hang on to it until after the courts are done. If the accused makes bail and then goes on the run, that might be years or even decades."
And of course, if you've reported it stolen, and then use it in self defense, you just might have a bit of a problem...!
suek - that is why for every registered firearm, there should be an exact backup purchased at a gun show...
And they should be kept separate in case there is a knock on the door...
suek, yeah, any gun that was "lost" would then become a single-use (then dumped in a river) or last-stand weapon.
Pearls, we don't live in a free state. We're in California. Gun shows, person-to-person - any firearms transfer - has to go through an FFL. Even intra-family transfers have to go through the CA-DOJ.
If you move to the lovely Golden State and you own guns, you are immediately considered to be a "Firearms Importer" and all of your guns have to be registered. Best be sure they're CA-legal guns as well, or they have to be turned in and destroyed.
Nice joint, huh?
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