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I am an American and pay taxes in US dollars. I have some holdings in another currency, for instance, the Euro. Obviously the funds have never been repatriated but this lack of tax event is messing with my accounting.

From my basic understanding, the tax event would be long or short term capital gains solely based on my initial entry into the foreign currency, and then how many dollars I have when I liquidate that foreign currency. Simple enough.

This starts becoming complicated for me when I am also invested in shares of companies denominated in this currency. The trades and investing has been largely successful, but is it such an absolute that there is no US tax event for these foreign denominated trades?

We can ignore PFIC regulations for this question. I am only concerned about income tax, capital gains tax and dividend withholding for the US jurisdiction.

The way I understand it right now, the only tax event is the one that occurs when I liquidate the financial products AND bring the proceeds back to my US accounts, and where new total is more than what I began with (capital gain).

And all of this is compounded by the fluctuations in the exchange rate. I feel like I can't even estimate my taxes if I wanted to. So I can't be the only one that has ever faced this dilemma, I have no need to actually realize capital gains or repatriate, so are there accepted guidelines

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From my basic understanding, the tax event would be long or short term capital gains solely based on my initial entry into the foreign currency, and then how many dollars I have when I liquidate that foreign currency. Simple enough.

No, mere currency exchange is not a tax event unless its an investment. No-one pays taxes at the exchange booths at the airports.

This starts becoming complicated for me when I am also invested in shares of companies denominated in this currency. The trades and investing has been largely successful, but is it such an absolute that there is no US tax event for these foreign denominated trades?

Why do you think its any different than investing in USD? You get your cost basis (how much you paid for the shares, in USD per the exchange rate of that time), you get the proceeds (how much you got when you sold, per the exchange rate of that time), and the difference is your gain/loss. Simple enough.

Beware though of various additional requirements for investing in foreign holdings - check IRS forms 8621, 3520/3520A, 5471, 8938, FBAR, and maybe more.

The way I understand it right now, the only tax event is the one that occurs when I liquidate the financial products AND bring the proceeds back to my US accounts, and where new total is more than what I began with (capital gain).

No, that is incorrect.

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  • some of the holdings are an investment, and I do also hedge these holdings with futures, but I also spend these holdings too. Like in some situations the same good/service may cost less (even if the currency appreciated against usd) just because the retailer never updated prices
    – CQM
    Commented Jul 8, 2013 at 17:28
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    @CQM so you treat each separately. You cannot get a 1000EUR gain, then go shopping in Berlin for 1000EUR, and then convert back to USD and say "hey, look, same amount - no taxes, yey!!!", doesn't work this way. You treat it exactly as if you were treating any domestic investment, no difference.
    – littleadv
    Commented Jul 8, 2013 at 17:30
  • okay, I can do my own withholding where necessary in this case, thanks
    – CQM
    Commented Jul 8, 2013 at 17:32

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