Can an LLC Own Precious Metals?
Saturday, December 9th 2023
Due to its flexibility and liability protection, LLCs have become popular in the US. LLCs may possess precious metals, which is sometimes overlooked. In this complete tutorial, we will examine the possibility that an LLC can have ownership of precious metals, what are the benefits and drawbacks to this approach as well as the legal and tax implications that are involved.
What is an LLC?
A Limited Liability Company (LLC) is a company form that combines partnership taxes with corporation limited liability. LLCs are founded by state legislation and subject to state restrictions. The LLC’s owners are called members. they could be individuals, corporations, or different LLCs.
Single-member LLCs have one owner, whereas multi-member LLCs have at least two. The profits, deductions as well as credits from an LLC typically flow to its members, who file the data in their personal income tax returns. This process is called pass-through taxation, which helps avoid the double taxation confronted by traditional corporations.
Due to their rarity, demand, and previous usage as currency, precious metals have high economic worth. The most famous precious metals are gold, platinum, silver, and palladium. These metals can be held in a variety forms like bullion bars, coins, or rounds. They are often utilized to protect against market volatility and inflation in addition to an investment diversification instrument.
Can an LLC Own Precious Metals?
The short answer is that yes, an LLC can hold precious metals. There aren’t any legal restrictions on the types of assets an LLC may own. This implies that an LLC is able to hold precious metals like other kinds of assets, for instance, real estate or stocks. However, the specific rules and regulations that govern how precious metals are owned by an LLC may vary depending on the state in which the LLC was formed.
When an LLC has precious metals, these metals are considered assets of the company, and not the personal property of the members. This distinction is designed to provide members with limited liability protection, which means they are protected from the debts and liabilities that are the responsibility of the LLC.
There are many benefits to own precious metals via an LLC, including:
- Protection from limited liability: As previously mentioned, the moment precious metals become owned by an LLC they are considered company assets, which means that the personal assets are shielded from the liabilities and debts of the LLC.
- Privacy: Owning precious metals through an LLC could provide the privacy of an LLC, because the ownership of metals is not directly tied to the name of the member. Instead, these metals will be registered in the name of an LLC which makes it more difficult for third parties to trace the assets to the individuals who are members.
- Estate planning and asset protection: An LLC could serve as an effective asset protection and estate planning tool. Through the ownership of precious metals in an LLC, owners can transfer their ownership stakes in the company to their heirs, and thus avoid probate and avoid potential estate taxes.
- Flexibility: An LLC offers a wide amount of flexibility when it comes to the management and distribution of its assets. This is particularly useful for members who wish to pool their funds to invest in precious metals or wish to develop a specific distribution plan for their assets.
The Drawbacks of Owning Precious Metals Through an LLC
Despite the many benefits there are a few drawbacks having precious metals owned by an LLC. These disadvantages include:
- Complexity and cost: Starting and managing an LLC will incur costs including filing fees, annual report charges, and potential franchise taxes (1), contingent on the state where the LLC was formed. Additionally, managing an LLC requires a certain amount of administrative tasks, such as maintaining records, drafting operating agreements and tax returns.
- Tax implications: Pass-through can help certain LLCs, but it won’t help them own precious metals. The Internal Revenue Service (IRS) considers precious metals collectable and taxes capital gains from their sale at a higher rate than other assets.
- Limited marketability: When precious metals are owned through an LLC, they can be less obtainable to those owned by individuals. Dealers or buyers may be wary about dealing with an LLC because of the added difficulty of the process and potential legal consequences.
- Storage and custody issues: Storing precious metals held by an LLC can be more complex than the storage of metals owned by an individual. It is the responsibility of an LLC to make sure that metals are properly stored in a secure location and that the process of custody has been correctly documented to prevent any controversies or claims based on the ownership of the assets.
Tax and Legal Consequences of Holding the Precious Metals of an LLC
Like all investments it is crucial to take into consideration the legal and tax consequences of holding valuable metals via an LLC. The most important considerations are:
Sales tax: It is based on the state where the LLC is created and the precious metals are bought and sold, sales tax might be applicable to the purchase. Certain states exempt certain varieties of metals that are precious from sales tax and others apply a tax to any purchase of precious metals.
Capital gains tax: as previously stated that the IRS considers precious metals collectibles, subject to a higher capital gains tax rate that other assets. The maximum capital gains tax rate for collectibles currently is 28%. This is in contrast to a maximum rate of 20 percent for other types of capital gains.
Business Income: Tax when doing non-essential activities, an LLC may be subject to Unrelated Business Tax Income. Actively trading precious metals or leasing storage space to investors in other precious metals may create company revenues, but holding precious metals alone is unlikely to trigger UBTI (2).
Self-directed IRA factors: Certain investors opt to store precious metals in a self-directed IRA that permits an income-tax-free growth of the assets. In this situation, the precious metals must be stored by a licensed custodian, and the LLC must be created as a special purpose corporation to comply with IRS self-directed IRA guidelines.
In essence, an LLC can own precious metals, and there are many advantages to this option, including the protection of limited liability, privacy, and flexibility in inheritance planning as well as asset security. There are however downsides to consider including higher costs and complexity, tax implications, as well as the ability to sell the precious metals.
If you are considering holding precious metals via an LLC It is crucial to consider the pros and cons, consult with tax and legal experts and take into consideration the specific conditions of your particular situation. This way, you can make a well-informed choice on whether holding precious metals through an LLC is the best option for you and your goals in investment.
Ready to add gold and silver in your IRA?
Everyone desires peace of mind regardless of retirement goals. If you are looking to add silver and gold to your retirement investment portfolio you can do this by establishing a self-directed IRA. These types accounts allow you to build your retirement portfolio that appreciates in value on a tax-advantaged basis. As with any investment instrument, always do thorough research. To learn more, take a look at our gold IRA consultants reviews for the “top firms across the USA below.
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