American expat, pays capital gains tax in USA?

[hapacadabra]

Short question:

Looking for any American, who actually files taxes in the USA, and has capital gains... and when I find him... I would ask him: Do you have to pay taxes on the capital gains?

It is surprisingly (or, actually, unsurprisingly...) difficult to find anyone who files taxes.

 

 

Long version... there is a guy:

 - American expat, living in Thailand

 - files taxes in the USA every year, and uses the "Foreign Income Exclusion" form, resulting in *only* Social Security being paid

 

This is the first year he will have "Capital Gains", from stocks. So he does not know what will happen when he does his Turbo Tax, next Spring.

 

Operating with these 2 facts:

 - someone in his situation, only pays Social Security

 - no one (expat or otherwise) pays Social Security on Capital Gains

 

^ Given those 2 facts, it *looks* like he will not pay any tax on his Capital Gains. Just looking for someone who already has a history of Capital Gains, to verify, one way or another!

 

Thanks.

[tonray]

Yes...of course you have to pay taxes on capital gains earned on US assets. 

[55Jay]

Yes.

 

Also, have your friend check out TaxAct pricing and capabilities vs. TurboTax. 

[Sheryl]

Yes, and I have done so.

 

The only thing that is exempt is income earned overseas, up to a certain amount, provided you have established a "bona fide residence" abroad or been out of the country at least 330 out of 365 days.

 

"Unearned income" - interest, capital gains, dividends etc - are all fully taxed.

 

And if on is self-employed, still have to pay self-employment tax.

[hapacadabra]

You say "of course" - but why is it "of course"?

 

He only pays 50% taxes, essentially. If his tax burden would be 30%, in the USA, his tax burden is only 15%, while living in Thailand. By using the Foreign Income Exclusion form. He does *not* pay standard federal income tax. He *only* pays Social Security. There is no Social Security burden on Capital Gains.

 

So, say he has $5k of Capital Gains this year? He is taxed at a standard Capital Gains rate? A separate rate than his other income? No discount for being an expat? 50% discount? Other?

[Sheryl]

See my post above.

 

Only earned income is exempted. He pays the standard tax on capital gains, and also on any dividends and interest received.

[hapacadabra]

Thanks Sheryl - what a bummer!

[55Jay]

https://www.irs.gov/taxtopics/tc400/tc409

 

Double check for any changes between now and next Spring.  If he uses Turbo Tax, they send out updates to the software, and they also have a Help/Info function to walk him through it. 

[craigt3365]

I had a mess this year with capital gains, loses and carry forwards.  As Sheryl points out, you have to pay taxes except that which falls under the foreign income exclusion.  Which is earned income only.

 

I've been using TurboTax since the first year it came out.  But this year, it was just too complicated.  I hired a guy who did a great job for $200.  All done remotely.  Fantastic.

 

You can get yourself into trouble if you don't know what you are doing by using something like TurboTax.

 

Don't forget to file your FBAR.  It's super important.  And easy to do online.

[wwest5829]

Agree with the knowledgeable responses. I am a resident of Thailand (thus no state income taxes). No earned income as I am retired. I do not use a computer tax application. Capital Gains tax paid every year, although I use the applicable tax law thus minimizing the tax. I have run the numbers so that my retirement/passive income minimizes having to pay tax on my $16,250.00 annual S.S. income. Comfortable living in Thailand on $2400.00 a month.

[SpokaneAl]

18 hours ago, hapacadabra said:

You say "of course" - but why is it "of course"?

 

He only pays 50% taxes, essentially. If his tax burden would be 30%, in the USA, his tax burden is only 15%, while living in Thailand. By using the Foreign Income Exclusion form. He does *not* pay standard federal income tax. He *only* pays Social Security. There is no Social Security burden on Capital Gains.

 

So, say he has $5k of Capital Gains this year? He is taxed at a standard Capital Gains rate? A separate rate than his other income? No discount for being an expat? 50% discount? Other?

The capital gains rate is based on one’s income tax rate - the lower one’s income tax rate, the lower the capital gains rate. There are no discounts for being an expat.

 

He will file his income taxes, which will, in turn, determine the capital gains rate. 

 

You do do not mention the holding period of the investments generating capital gains - that could have a big impact on whether he qualifies for long term capital gains, which could be as low as zero, or short term capital gains which are taxed at the ordinary income tax rate.

 

You mention that that he pays only 50% taxes - that does not make any sense. He is liable for taxes generated as a result of any US related income. 

Edited October 27, 2017 by SpokaneAl

[Suradit69]

If he's accumulated capital losses from past years (and Turbo Tax stored that information) a percentage of which carry forward from year to year, that may reduce his tax liability for current capital gains, but they are taxable.

 

When I was working outside the US I used Turbo Tax and it managed to cope with both my income exclusion and gains or losses on stocks. It isn't such a unique situation that Turbo Tax can't deal with it. There's also loads of information provided online by the IRS. Just Google what you/he are/is looking for.

Edited October 27, 2017 by Suradit69

[tonray]

28 minutes ago, SpokaneAl said:

You mention that that he pays only 50% taxes - that does not make any sense. He is liable for taxes generated as a result of any US related income.

I think he is likely referring to the fact that 50% of your SS benefit may be taxable depending on your situation.

[craigt3365]

21 minutes ago, Suradit69 said:

If he's accumulated capital losses from past years (and Turbo Tax stored that information) a percentage of which carry forward from year to year, that may reduce his tax liability for current capital gains, but they are taxable.

 

When I was working outside the US I used Turbo Tax and it managed to cope with both my income exclusion and gains or losses on stocks. It isn't such a unique situation that Turbo Tax can't deal with it. There's also loads of information provided online by the IRS. Just Google what you/he are/is looking for.

My issues were around property.  Bought, sold, foreclosed, re-sold, rented, foreclosed, ugh....

[SpokaneAl]

I think he is likely referring to the fact that 50% of your SS benefit may be taxable depending on your situation.

Up to 85% of one’s social security income may be taxable depending on total income amount.


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[watcharacters]

1 hour ago, wwest5829 said:

Agree with the knowledgeable responses. I am a resident of Thailand (thus no state income taxes). No earned income as I am retired. I do not use a computer tax application. Capital Gains tax paid every year, although I use the applicable tax law thus minimizing the tax. I have run the numbers so that my retirement/passive income minimizes having to pay tax on my $16,250.00 annual S.S. income. Comfortable living in Thailand on $2400.00 a month.

 

 

When you say resident, I wonder if you simply mean "reside in" or do you have some Thai status?

 

Unless you previously resided in one of the now  only 7 remaining states without state income tax, you could  have a tax obligation waiting for you in the wings somewhere.

 

 

[tonray]

5 minutes ago, SpokaneAl said:

 

Up to 85% of one’s social security income may be taxable depending on total income amount.


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Yes...but I believe he was saying his friend's benefit is 50% taxable.

[SpokaneAl]

Yes...but I believe he was saying his friend's benefit is 50% taxable.

 

You may very well be correct, but if so, that really confuses things, because that would indicate he has other earned income.

 

 

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[tonray]

4 minutes ago, SpokaneAl said:

 

You may very well be correct, but if so, that really confuses things, because that would indicate he has other earned income.

 

 

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I think the whole OP was a bit confusing. But that is not unusual with the complexity of our tax laws..most people have no clue and I know several Americans here who have not filed in years because they think expats don't have to file. I say my piece and all I can do..but they tune it out

[dunque]

20 hours ago, tonray said:

Yes...of course you have to pay taxes on capital gains earned on US assets. 

I am no expert, but this seems to apply to capital gains on non-US assets - a case a couple of years ago for Boris Johnson, Mayor of London, who was born in US and had dual nationality and was clobbered for US capital gains on the sale of his London home (exempt main residence in UK tax law).

 

http://www.bbc.co.uk/news/uk-politics-30932891

[Pinot]

I run through Turbo Tax every year but never have to pay so I don't file taxes. Capital gains are considered but I don't have enough income and there are prior losses. 

 

You don't have to file if there is no tax liability. 

 

Schwab will deduct 10% from IRA withdrawals so I  will be filing taxes from here on out. 

 

By the way, if you're married get your wife a tax ID number and file a joint return. 

Edited October 27, 2017 by Pinot

[tonray]

16 minutes ago, Pinot said:

I run through Turbo Tax every year but never have to pay so I don't file taxes. Capital gains are considered but I don't have enough income and there are prior losses. 

 

You don't have to file if there is no tax liability. 

 

Schwab will deduct 10% from IRA withdrawals so I  will be filing taxes from here on out. 

 

By the way, if you're married get your wife a tax ID number and file a joint return. 

It depends on the situation. Just the fact that your tax liability is zero does not automatically mean you don't have to file.

 

https://turbotax.intuit.com/tax-tips/irs-tax-return/do-i-have-to-file-a-tax-return-if-i-dont-owe-tax/L5QvbFosB

[IAMHERE]

Use last years version of TurboTax, use a fake name, run the numbers for last year including a 'fake' or 'simulated' amount for capital gains. See what numbers come out. The tax for last year would give an indication for this year. If the capital gains is small enough I'd think standard deduction/exemption will reduce the hit.

 

As for not filing because you own no taxes I think may still get you into trouble. The IRS says you have to inform them of any accounts at banks outside the USA; this is not the form you also have to fill out if over ten thousand dollars.

Edited October 27, 2017 by IAMHERE
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[wwest5829]

3 hours ago, watcharacters said:

 

 

When you say resident, I wonder if you simply mean "reside in" or do you have some Thai status?

 

Unless you previously resided in one of the now  only 7 remaining states without state income tax, you could  have a tax obligation waiting for you in the wings somewhere.

 

 

Under U.S. tax code while I remain a citizen of the U.S., I am a resident of Thailand. I own no property in any state and as I have no income from entities in the state of my last resident status, I am not subject to any state tax. I recognize that this varies in different states. I last resided in a state with income tax but am no longer subject. I understand that if it were N.Y., for example, things would be quite different.

[hapacadabra]

8 hours ago, SpokaneAl said:

You mention that that he pays only 50% taxes - that does not make any sense. He is liable for taxes generated as a result of any US related income.

I'm saying... and I'll keep using round numbers... Given 50k income... his total tax burden would be approx 7.5k (15%)... whereas, if he lived in the USA, his burden would be approx 15k (30%).  So I said - he only pays 50% of what he *would* pay, if he was not an expat.

 

His Social Security is almost exactly 50% of his total tax burden - and that is *all* that he pays, as an expat. The other 50% is wiped out. So, to put it simply - he gets a 50% tax discount. He is well below the threshold (It's 100k+ now?) where the US would stop applying that 50% discount.

[DrDave]

I'm confused about the "50% discount" that you mention. Can you provide any detail as to what drives this "discount", and what specifically causes the tax liability to be 7.5K if filing with a Thai residency versus 15K if filing with a US residency?

 

In my case, for the years I filed with a Thai residency, there was absolutely no difference in the federal tax liability between filing with Thai residency and filing with US residency.

 

Up to 85% of Social Security benefits are taxable, with the taxable amount being determined by the amount of other income. All (or just a portion) of capital gains is generally taxable, with the taxable amount and the rate determined by the amount of the gains and the amount of other income. Withdrawals from 401(k) and IRA plans are taxable as ordinary income. I believe none of the rules regarding taxability and tax rates of the three types of income above are influenced by the filer's residence (foreign or US).

[DrPhibes]

There seems to be a lot of confusion on the subject of Foreign Income Exclusion. The exclusion applies to earnings from working, either as an employee, or self-employed overseas.  No other types of income are excluded.  If he meets the time criteria overseas (which can be confusing since it can span different calendar years), he can qualify for excluding his working income up to $101,300 USD. By the sounds of it, he is self employed and making under $101,300 so that his working income is excluded but he will have to pay Self-Employment taxes (Social Security and Medicare- S/E tax).   When he sells stock (or has any other kinds of income), the tax calculation will figure any capital gains tax (short term or long term) or tax on any other income without regard for the income exclusion.  His working income will end up being excluded from tax (save the S/E tax), the rest of his income will be taxed at this theoretical higher rate.  One thing I cannot stress enough, if the sale price of the stock only, put into your tax return, would cause you to have tax, you must file a return.  The IRS assumes you have no basis (purchase price) in the stock until you justify it by filing a return.  All US citizens and Green Card holders are on the hook for taxes until they are no longer citizens or Green Card holders no matter where the income is earned in the world.  Hopes this helps.

Edited October 27, 2017 by DrPhibes
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[hapacadabra]

2 hours ago, DrDave said:

I'm confused about the "50% discount" that you mention. Can you provide any detail as to what drives this "discount"

 

58 minutes ago, DrPhibes said:

By the sounds of it, he is self employed and making under $101,300

Correct.

 

 

[chingching]

On 10/26/2017 at 1:51 PM, tonray said:

Yes...of course you have to pay taxes on capital gains earned on US assets. 

What about capital gains earned on non-US assets ?  I'm thinking bitcoin here guys.  

In TurboTax,  would bitcoin come under the "stocks" category ?

 

[SpokaneAl]

What about capital gains earned on non-US assets ?  I'm thinking bitcoin here guys.  

In TurboTax,  would bitcoin come under the "stocks" category ?

 

https://www.thebalance.com/how-bitcoins-are-taxed-3192871


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