Thought Form. 2555 exemption only applied to salaries
Any other income is subject to tax
Been 20 years since I used that form but it was limited to income from salary only
Things have changed ?
No, but long term capital gains and qualified dividends have a low tax rate, and if you make under $50,000 (more or less) in investment income, you’re not likely to owe any taxes.
As an American citizen you have to report your capital gains, and you do have to pay taxes on them. Your income in Taiwan (as long as it is below the threshold) is excluded, but you gotta pay taxes on all capital gains. You get a 12,000 dollar deduction that can apply toward capital gains, but you have to pay capital gains on everything else. There is some wiggle room for capital gains if your reported income is below a certain amount though. You can look at the IRS website for the specific amount. This amount includes foreign income even if it is excluded from US taxation.
I would set up an online account with the treasury department if you are making capital gains to prepay your estimated taxes. If you don’t prepay your estimated taxes you will be fined by the IRS when you file your taxes in most situations. I don’t know where people are getting this $50,000 investment income figure from. You will definitely have to pay capital gains on that.
As far as brokerages are concerned, I’d go with Interactive Brokers or Schwab. I think you could also look into Firstrade as well. Ameritrade is pretty good, but they are being acquired by Schwab anyway. Schwab will give you an ATM/Debit card and will refund foreign ATM transaction fees. It’s really good.
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With Schwab, can I set up this type of international account while I’m in Taiwan?
I did with a US address and a passport. This was a couple years back.
Awesome. Paying less tax is good.
You should be able to. They might have a minimum account balance requirement though. If you find it difficult then go with Interactive Brokers. It’s pretty easy to open an account with them with a foreign address.
Indeed. I’ve managed to avoid paying taxes so far. Actually making enough to owe taxes wouldn’t necessarily be a bad problem to have though.
Note that if you’re making 1099 misc self employment income as a contractor or sole prop LLC not taxed as S corp, you can’t exclude all of the first ~100k using foreign income exclusion. You have to pay ~15% self employment tax on that to the US no matter what unless you manage to claim everything as business expenses.
Just put all money in Panama, Singapore UK HK or other tax havens.
That doesn’t work for Americans.
Why not? Works for American corporations doesn’t it ?
For individuals, you can’t just easily stash your money overseas to hide it (see: FACTA). For individuals who set up businesses overseas, see the rules on controlled foreign corporations.
Large corporations are different beasts. They do things individuals and small businesses can’t because of their corporate structures, shareholder compositions, overseas operations, etc.
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Individual U.S. taxpayers get screwed like an Ikea bookcase.
Good to know. But how do wealthy US individuals manage to hide wealth then?
It all depends on those countries actually reporting it. If you have millions to stash away they must be looking the other way.
Hi!
I want to add to this thread, asking if anyone can help me. I’m trying to start thinking about my future by opening an investment/brokerage account. As a US citizen working and earning income in Taiwan, all of the laws and regulations are very confusing. All of my income is earned in Taiwan and I am excluded from paying US via FEIE and by making under $105K.
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What are my investment options?
I know that mutual funds are a no no. Also, an IRA (both traditional and roth) seem to be exxed out too because it requires using US-earned and taxed income. Therefore, is it safe to open a general ETF investment fund (stocks/bonds)? And does anyone know how/if it will be taxed (annually and also if I withdraw for whatever reason)? -
Specific firm recommendations and address concerns?
I’ve opened up an account with E*Trade just to see how it all works. I can use my parent’s address, so that shouldn’t be a problem. However, they require me to put in my company information. Is it going to be a problem that I put in a Taiwan address? It will be the truth and match my tax returns, but I keep reading that firms automatically close out non-US residents.
Any insight will be so so very helpful!
You can get mutual funds if you use a US address (Vanguard, Fidelity, etc.). I have a US google number and that seems to help some.
If you go back periodically, even for a month or two, you can invest whatever fraction of what you make that year in the US in a Roth IRA (up to the current allowed amt). This is what we do and it’s worked for us. I have a foreign employer so that also gives me some other options.
I don’t know the Taiwan investment scene, because I’m one of the folk who doesn’t want more than 10,000 in an account, but if I was married to a local and looking to buy a house, I’d probably just start investing as able (buy some stocks direct, precious metals, bonds, etc.).
I’ve tried to open an account (investment/brokerage, not IRA) with Fidelity, but they require me to enter employer information and it must be in the US (there is no option to enter another country). How did you do this?
You cant be unemployed?