taxes on American capital gains

Hi All,

Have you been taxed on the capital gains you've earned from selling some of your American stocks in the U.S., whilst living abroad?  I haven't lived in the U.S. since 2004, and each year I have included the capital gains form...every year they have thankfully not tried to double-tax me on my standard income which was earned abroad, and more surprisingly, they have also never come after me for the capital gains I earned by selling stocks in the U.S.

Why is that? Was I just lucky, perhaps because my gains were so small (Less than 2K per year) and it wasn't worth the effort for them to come after me?

Also I recently opened a new brokerage account and was asked to fill in an American W9 form, which makes me a little nervous...does that mean they will try to tax me on my European stocks sold abroad?

Thanks

Well, they tax you on worldwide income, so I would guess it's more that your gains have been small thus far.  You still have to report the income earned, from any source.

So does the government just include U.S. capital gains tax in the total potential tax liability, even though they were earned in America, unlike the standard income? I thought they'd assess them separately and make them payable regardless of how the 1040 worked out.

Hi All,

Have you been taxed on the capital gains you've earned from selling some of your American stocks in the U.S., whilst living abroad?  I haven't lived in the U.S. since 2004, and each year I have included the capital gains form...every year they have thankfully not tried to double-tax me on my standard income which was earned abroad, and more surprisingly, they have also never come after me for the capital gains I earned by selling stocks in the U.S.

Why is that? Was I just lucky, perhaps because my gains were so small (Less than 2K per year) and it wasn't worth the effort for them to come after me?

Also I recently opened a new brokerage account and was asked to fill in an American W9 form, which makes me a little nervous...does that mean they will try to tax me on my European stocks sold abroad?

Yes you should be subject to tax on your cap gains even if you are living abroad.  I cannot know exactly how you have completed your tax return, but my guess is that you earn foreign income which is completely wiped out by the foreign earned income exclusion.  If so and you just have the $2k of capital gains, then it is covered by your personal exemption/standard deduction.  So while you have cap gains, your taxable income is zero.  This is just a guess so let me know if you are doing something completely different.

And your foreign income shouldn't be double taxed so it should neither be thankful nor a surprise.  In practice, with straightforward earnings, double tax is more a myth than anything else.

Remember your worldwide income is potentially subject to US tax.

So does the government just include U.S. capital gains tax in the total potential tax liability, even though they were earned in America, unlike the standard income? I thought they'd assess them separately and make them payable regardless of how the 1040 worked out.

Capital gains and ordinary income are both on the same form.  Capital gains are not assessed independently.  You can apply both your personal exemption and standard deduction against both types of income, so you can certainly have a case where cap gains are reported but no tax is due.

Yes you should be subject to tax on your cap gains even if you are living abroad.  I cannot know exactly how you have completed your tax return, but my guess is that you earn foreign income which is completely wiped out by the foreign earned income exclusion.  If so and you just have the $2k of capital gains, then it is covered by your personal exemption/standard deduction.  So while you have cap gains, your taxable income is zero.  This is just a guess so let me know if you are doing something completely different.

And your foreign income shouldn't be double taxed so it should neither be thankful nor a surprise.  In practice, with straightforward earnings, double tax is more a myth than anything else.

Remember your worldwide income is potentially subject to US tax.

Thanks for this response Sara. It's becoming clearer now; I just have a few follow-up questions please. You were saying that I shouldn't really have to worry about double taxation. But I thought that years ago I read in a few places that once your standard income earned abroad exceeds a certain threshold (I think I recall $80,000 being mentioned, years ago), the U.S. government can hit you with an additional tax on amounts over that. Is that definitely not the case?

And if not, why are you mentioning that my worldwide income is potentially subject to U.S. tax- do you mean only where the total tax payments in the foreign country I earned my salary in were actually lower than what we'd pay under the U.S. tax tables? (I'm spending a year in Germany at the moment so that wouldn't be a problem assumedly, with the much higher income taxes here).

Also I guess this means they will also include stocks bought and sold in foreign countries in their calculation (but there again I am paying a higher rate than the American one)?

Regarding your earlier question about how I prepare my taxes, I use the standard forms like 2555 etc. and so far have been able to calculate no tax liability when everything is added up.

Thanks!

Further to my previous question, this article also mentions an income limit above which we can be taxed ($91,400):


http://www.nuwireinvestor.com/articles/living-abroad-expat-tax-rules-52761.aspx

Or when they say "income" do they mean NET income after taxes earned abroad?

Thanks