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.
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.
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.
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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