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Author: totsubo Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 63935  
Subject: Suggestions on US tax filing for NR Canadian Date: 12/19/2012 6:55 AM
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I'm thinking of filing taxes in the US for the first time and I would like to have for suggestions on how to do this.

First, my circumstances - I'm a non-resident Canadian living in Japan with an account at Interactive Brokers Canada with which I trade US equity stocks and options. Recently I've been trading a *lot* of options. Most of my stock holdings are long-term buy-and-hold.

Until this year I was with Charles Schwab in Hong Kong and did not file US taxes. They held back a minimum amount of taxes (10%) on any dividend income I received. I didn't really sell much if at all so didn't generate any income worth declaring. (Though I'm not sure if not filing taxes was ok or not).

I've been doing very well this year, especially on the options front and If there is a minimum filing threshold I've probably crossed it, so now I am thinking of filing taxes in the US for the first time. I'm actually a bit frightened by the thought ...

Right now I have the following basic questions that I'm having a hard time finding answers too (actually Google returns lots of answer but they are often contradictory!):

1- As a non-US citizen and non-US resident, do I need to file US taxes for gains on selling stock, or options? (I've found one web page that says I don't, which just sounds too good to be true).

2- If I do need to file US taxes, would anyone have a recommendation for a low cost service or software package that can handle stock and option trades? I don't feel up to the task of attempting to file a return by myself.

Thanks!
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Author: 1971simon Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63153 of 63935
Subject: Re: Suggestions on US tax filing for NR Canadian Date: 12/19/2012 12:38 PM
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Hang on here...

1 - You're not a US citizen
2 - You're not a US resident
3 - Your trades are done through a Canadian Broker

Why do you even think you need to pay US taxes? As I've never been in anything similar don't take this as advice, I'm just thoroughly confused.

Simon

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Author: rev2217 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63154 of 63935
Subject: Re: Suggestions on US tax filing for NR Canadian Date: 12/19/2012 1:19 PM
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totsubo,

The best place to obtain information on this is the Internal Revenue Service (IRS) here in the United States (http://www.irs.gov for web site). The web site has all current tax forms and instructions, and it also has the full text of relevant treaties governing taxation of citizens of other countries in the United States.

1- As a non-US citizen and non-US resident, do I need to file US taxes for gains on selling stock, or options? (I've found one web page that says I don't, which just sounds too good to be true).

Probably not. Your broker undoubtedly withheld U. S. taxes from your gains, which would cover the taxes if you don't file a return. There is some possibility that your tax liability to the United States might be less than the withholding, but you probably receive a credit against taxes that you pay in your own country for the amount that you pay in taxes to the United States so filing for a refund in the United States would just reduce the credit, netting nothing for you. Thus, it probably is not worth the time and effort to file a return in the United States.

2- If I do need to file US taxes, would anyone have a recommendation for a low cost service or software package that can handle stock and option trades? I don't feel up to the task of attempting to file a return by myself.

The two leading programs are H&R Block's "At Home" and Intuit's "TurboTax." These programs come in separate versions for simple, intermediate, and complex returns, with different price points. The middle version of each will handle stock and option transactions and stock dividends.

Norm.

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Author: rev2217 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63155 of 63935
Subject: Re: Suggestions on US tax filing for NR Canadian Date: 12/19/2012 1:25 PM
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Simon,

Hang on here...

1 - You're not a US citizen
2 - You're not a US resident
3 - Your trades are done through a Canadian Broker

Why do you even think you need to pay US taxes? As I've never been in anything similar don't take this as advice, I'm just thoroughly confused.


If you derive income through investments in a country other than your own, that income is subject to taxation in the country of the investment because that's where the income is actually realized.

Norm.

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Author: ByrneShill Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63157 of 63935
Subject: Re: Suggestions on US tax filing for NR Canadian Date: 12/19/2012 2:26 PM
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If you live in japan, you should file a japanese tax report. Wheter you should file a US tax report really depends on tax treaties between japan and US, which I don't know much about.

But in general, if your country of residence (in your case, japan) has a tax treaty with the other country (in this case, the US), you don't file a tax report, you only claim the taxes paid to the foreign country as a deduction in your country. For example, as a canadian living in canada, if I pay US taxes due to dividends on a US stock, I can claim that amount on my canadian tax report and be done with it.

If you country doesn't have a tax treaty in place, you can either file a tax report or not, whichever is most convenient to you. For example, as a canadian living in canada, I paid 10$ in taxes to France because of dividends on Total SA in my RRSP account. I cannot claim that tax on my canadian tax report because it's in a tax-protected account, but I sure as heck ain't filing a french tax form for 10$. If it was 10k$, then I'd probably file one.

So the answer really is in the Japanese tax code. If you can claim a deduction on foreign taxes, then you don't file a foreign one. If you can't, then it's up to you.

One more thing: you never have to file a foreign tax report (with one exception: US citizens have to file a report even if they don't live in US). I would strongly suggest that you file a canadian tax report IF you intend on coming back to live in canada, but other than that, you should file only reports from:
1-The country (and/or jurisdiction, province, state, city) you live in;
2-If you believe you've paid more than your share and will get a meaningful reimbursment.

One last thing: filing a US tax report is not the hell that americans make it appear to be. A simplified 1040NR (the tax form for Non-Resident) is 2 pages long, one of them being your infos and dependants. Last time I filled one, filling my adress was the most challenging thing on that form.

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Author: 1971simon Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63158 of 63935
Subject: Re: Suggestions on US tax filing for NR Canadian Date: 12/19/2012 4:08 PM
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If you derive income through investments in a country other than your own, that income is subject to taxation in the country of the investment because that's where the income is actually realized.

Oh. I did not know that. But then again between the RRSPs, RESPs, and TFSAs I don't do any after-tax investing (well, aside from the TFSA). But good to know, thanks.

Simon

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Author: drdrab Two stars, 250 posts Old School Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63159 of 63935
Subject: Re: Suggestions on US tax filing for NR Canadian Date: 12/19/2012 8:34 PM
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Totsubo

Has your broker had you fill out an IRS form called W-8BEN?

If you are resident of a country with a tax treaty with USA, (Canada does, no idea about Japan) this form (at least my broker told me)allows the broker not to have to withhold USA taxes on profits of USA listings.
You then are meant to declare that income on your taxes filed with your country of residence.

Not a tax guy, but this is what I have been doing for 15 years, and as far as I know the IRS is not after me. I go through the USA every month and haven't been arrested yet.

Cheers
drab

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Author: rev2217 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63166 of 63935
Subject: Re: Suggestions on US tax filing for NR Canadian Date: 12/22/2012 3:12 PM
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Simon,

Oh. I did not know that. But then again between the RRSPs, RESPs, and TFSAs I don't do any after-tax investing (well, aside from the TFSA). But good to know, thanks.

Actually, the reciprocal tax treaties have not yet caught up with retirement accounts that receive special tax treatment. If you hold a foreign investment in such an account, the custodian generally will withhold taxes from dividends and capital gains on those foreign investments for the respective foreign government.

Also, most countries give a credit against their own income taxes for taxes paid to a foreign government on foreign investments. Unfortunately, taxes paid by a retirement account typically do not qualify for such credits because the retirement account typically is considered to be a separate entity from its owner.

Norm.

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Author: rev2217 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63172 of 63935
Subject: Re: Suggestions on US tax filing for NR Canadian Date: 12/27/2012 1:43 AM
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ByrneShill,

One last thing: filing a US tax report is not the hell that americans make it appear to be. A simplified 1040NR (the tax form for Non-Resident) is 2 pages long, one of them being your infos and dependants. Last time I filled one, filling my adress was the most challenging thing on that form.

The headache of filing U. S. income tax forms is not the basic form (1040, 1040A, 1040NR, etc.). Rather, it's the plethora of "schedules," "workheets," and other supplemental forms that get attached thereto, coupled with rounding up all of the information that one needs to complete all of those forms (W-2's from employers, various 1099's from financial institutions and other payors, documentation of deductions and expenses, etc.). Last year, my federal tax return was about twelve pages as submitted -- and then most of the fifty states require a state tax return that is just as complicated as the federal tax return. Also, anybody who lives in one state and works in another typically must file tax returns in both states.

Norm.

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