2

I'm a United States citizen, however I will be living outside US for the next few years. I still have a US brokerage account. Will I still be charged capital gains tax for trading US stocks with my US brokerage account while I'm living outside US? If so how much?

8

It's worse than that. You'll be charged US tax on all of your income, capital gains and other. Depending on where you are living, the tax you pay in that other country may (or may not) be used to offset the tax you have to pay on your US tax return.

  • omg are you serious, that is absolutely insane, may I ask what your source is? Dang IRS, it is freaking worse than the most evil corporation I can think of. – Exocomp Apr 6 '17 at 13:12
  • Check here to see if there is a tax treaty: irs.gov/businesses/international-businesses/… – CactusCake Apr 6 '17 at 13:26
  • @Exocomp Unfortunately this is the correct answer - the US is one of only 2 countries in the world to tax based on citizenship, not just residence / source of income [the other being, I believe UAE]. Unfortunately, expat citizens vote in staggeringly low numbers, and they are often vilified to some extent in the media [you've probably seen articles about "offshore tax haven income" now being taxed with more diligence - well that's now you!]. This means that it's unlikely to ever change, because it's a good source of government revenue, and changing it gives no one any political advantage. – Grade 'Eh' Bacon Apr 6 '17 at 17:33
0

What ChrisinEdmonton told you is perfectly correct: you have to file US income tax returns on which you declare (and are taxed on) your worldwide income regardless of whether you reside in the US or elsewhere. That is, your income in your country of residence must also be declared on your US tax return and you are obligated to pay US income tax on it even though that income might have been taxed by that country. There are, however, a few reductions possible. You can deduct (some of) the foreign income taxes paid from your gross US income in arriving at your taxable income (which will reduce the tax due) or you can get a tax credit against your US income tax for taxes paid to foreign governments. There is also a limited exclusion for income earned abroad on your US tax return. See, for example, Taxpayers living abroad or Publication 54: Tax Guide for US Citizens and Resident Aliens Abroad. Note in particular that there ares no special consideration for capital gains.

The US has tax treaties with many countries (and Double Taxation Avoidance Agreements (DTAA) with others, usually in cases where the US Senate refused to ratify a treaty) that specify that income generated in each country will not be taxed by the other. There also are various categories of income (pensions, social security payments etc) whose tax treatment is spelled out in these treaties. Begin with Publication 901 to find out more details about tax treaties. Note however that Publication 901 says

Tax treaties reduce the U.S. taxes of resi­dents of foreign countries. With certain excep­tions, they do not reduce the U.S. taxes of U.S. citizens or residents. U.S. citizens and residents are subject to U.S. income tax on their world­-wide income.

while Publication 54 says

Treaty benefits generally are available to residents of the United States. They generally are not available to U.S. citizens who do not reside in the United States.

Note also that you will likely have bank accounts, brokerage accounts, etc in the country of residence, and so you need to declare the existence of these to the IRS as well as the Treasury Department. If the total value of these assets is less than $10,000 during the entire year, then no reporting is necessary. Search for FATCA, FBAR and FinCen to find out more about this. You might find it useful to read the sister site expatriates.SE.

  • "For example, you will not owe capital gains tax to the country of your residence on the trading of US stocks " This is not typically correct; or at least, the determination of the 'source' of capital gains will depend on the tax treaty involved (ie: it will depend on the other country involved). Typically from the US tax treaties I am familiar with (Canada, but also others), capital gains on intangibles like stock are primarily taxable in the country of residence. They are then taxable in the other country, if that country's taxes would be higher than the first. – Grade 'Eh' Bacon Apr 6 '17 at 17:27
  • @Grade'Eh'Bacon I disagree. A US citizen living in a foreign country must declare his/her world-wide income on his/her tax return and there is generally no special consideration for capital gains. See irs.gov/individuals/international-taxpayers/…. A Canadian citizen residing in the US is a different matter. – Dilip Sarwate Apr 6 '17 at 20:30
  • That is still not correct. A US citizen reports all income regardless of source / residence - this is true. But they are ultimately only taxed [in most cases] on (a) income sourced from the US; and (b) tax on income sourced outside the US, where the tax rate from that other country is lower than the applicable US tax rate. This allocation of tax between countries is typically dealt with through foreign tax credits, or mechanics like the Foreign Earned Income Exclusion. However, note this line from the Canada-US tax treaty: fin.gc.ca/treaties-conventions/usa_-eng.asp ... – Grade 'Eh' Bacon Apr 7 '17 at 12:34
  • Article VIII, paragraph 4: Gains from the alienation of any property other than that referred to in paragraphs 1, 2 and 3 [ed - these paragraphs refer to real property {ie: land} & business property] shall be taxable only in the Contracting State of which the alienator is a resident. – Grade 'Eh' Bacon Apr 7 '17 at 12:37
  • This means that if a US citizen who is a Canadian resident earns capital gains on the sale of stock, Canada taxes that gain first. Then on your US return, you would calculate what your US tax would have been on the gain, and typically as long as your Canadian tax is higher than the US amount, you pay no additional tax in the US. Also per your last comment - note that Canadian citizenship has no impact on taxes; only the US and one other country (I have now looked it up - it is Eritria) tax based on citizenship. – Grade 'Eh' Bacon Apr 7 '17 at 12:41

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.