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About Straightpoop

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  • Nationality USA
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  • Year of birth 1949

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  1. @VikingIII The US allows a foreign tax credit on foreign source income but because of the way foreign governments impose taxes the US requires the foreign source income to be first allocated to a series of statutorily defined "baskets". The credit is then computed separately for each such basket. The two most important/common of these are the "general limit" (mostly labor related: wages, self-employment earnings, pension from employment, etc.) and the "passive" (most investment income: gains, interest, dividends, rent, royalties, etc.) Important in this regard are the US "sourcing rules" that determine whether an item of income is foreign sourced or US sourced. Dividends are easy: the corporate domicile of the payor governs the source. Interest can be a bit more complicated: like dividends the payor's domicile is presumptively the source but . . . if, as is the case with the US-Germany tax treaty the foreign country has the EXCLUSIVE right to tax a type of income (e.g. interest) regardless of the source, then the US, to avoid double taxation of its citizens living in Germany, will allow nominally US-sourced interest to be "treaty resourced" so that the German taxes can be taken as a foreign tax credit. Gains are sourced depending on the tax residence of the US citizen taxpayer: if resident abroad the gain is foreign sourced when realized but - and this is a big but: unless the gain is taxed at least a 10% foreign tax it will not be considered foreign sourced. (A loss is foreign sourced if the transaction, had it produced a gain, would have been taxed at least 10%.) All these various types of passive income are lumped together every year for purposes of computing the US foreign tax credit. So, while your USD capital loss got taxed in Germany as a capital gain, the German taxes (if any) on that gain will be available to offset any other foreign source passive income you might have. And if you didn't have any other such income for which to claim a US credit? Do not despair, the creditable but unused German taxes on that gain can be computed on your US return (Form 1116) and then carried back to the immediately preceding year or forward for the next 10 years until the opportunity arises to use them; for example: the exchange rate equation changes and you have a US gain but a EUR loss. The gain is foreign but no German taxes were imposed because it was a EUR loss in Germany. The credit from up to 10 years earlier can now be used. And, don't forget: in the meantime, the US loss can offset US gains and, if they exceed the gains, up to $3,000 of US ordinary income per year and if those losses (in the US) exceed the $3,000 annual maximum the balance can be carried forward indefinitely. In short, if you play your cards right, there is no reason to fret about an exchange rate contretemps of the type you describe.
  2. @VikingIII That transactions for US citizens resident in Germany (or anywhere the USD is not the functional currency) will sometimes produce unfortunate results of the kind you describe cannot be denied. But there are upsides to consider: 1. Because of the unfortunate fact that your US citizen did not escape US taxation by virtue of a change of residence to Germany, the dollar loss in your example is available to him to offset his taxable USD gains 2. Similarly the German taxes owed on his Euro gain will be available as a credit to offset his US taxes owed on this and any other foreign source passive income he might have and, last but not least: 3. The exchange rate tables could turn and at some point there might be a EUR loss even though there is a USD gain. As annoying as this German tax treatment may appear to be, it is child's play compared to the (mostly theoretical) horror of the US tax code's computation of foreign exchange gain/loss. Consider this scenario: A US citizen arrives in Germany to begin a new job on 1.1.2022. Prior to this date he had several US bank accounts and a US brokerage but owned no Euros. Upon his arrival at the Frankfurt flughafen he uses his US credit card to take a cab to his hotel where he again uses that US credit card to pay his hotel bill. The next day he is informed that his new German employer opened a girokonto in his name on 31.12.2021 and deposited a 10,000 EUR advance on his salary to help defray the costs of getting settled in Germany. The employer left an envelope containing his new Eurocard with the hotel concierge. To celebrate, our US citizen reserves a table at first class restaurant for the 5th of January and pays for his €200 meal with his new Eurocard. Unbeknownst to our US Innocent Abroad, his payment of €200 triggered a potentially taxable US foreign currency gain. Let's say that on 31.12.2021 and 1.01.2022 the USD/EUR exchange rate was $1 = €0.95. That means that the USD tax basis of each of the 10,000 Euros deposited to his account that day was $1.0523 On January 5, the Forex markets, having decided that there was no prospect of a Federal rate hike drove the value of the USD down to $1 = € 0.90 His restaurant purchase thus produced the following US foreign currency result: USD basis of €200 = $201.53 (200 x 1.0523) Proceeds (the meal) from the "Sale" of €200 on 5 Jan: €200 * 1/.90 = $222.00 For US tax purposes he had a (potentially) taxable foreign currency gain of $222 - 201.53 = $ 20.47 Fortunately, the US tax code says that if the transaction is "personal", i.e. represents neither reportable income nor a deductible expense and the gain is less than $200 it is exempt from taxation. So if our intrepid taxpayer does not try to write off the meal as a deductible travel or moving expense, he has nothing to report. But . . . theoretically anyway... he must maintain a record of the USD basis of every EUR that comes into his hands and then account for EVERY disposal (on a FIFO) basis (rent, investment purchase, gasoline, Happy Meal, etc.) to determine if there is a US taxable gain or loss on ALL his Euro expenditures. Because of the relatively low volatility of the USD/EUR exchange rates and the relatively small size of (most of) his purchases, there will likely be no reportable gain or loss but he still (theoretically) must assign a USD basis to and keep track of all his Euros until he has disposed of them all. Nasty, huh?
  3. @VikingIII To conceptualize the issue and better understand @PandaMunich's response it is important to realize that Germany (like the US) computes and taxes currency gains separately, i.e. additionally, from the gains/losses realized on an asset purchased with currency. Unlike the US, however, Germany appears (at least until lately with the recently announced change that Panda discusses in her earlier post) to have a concept that I will borrow from the medical profession and dub "naive foreign currency". "Naive" currency is money that is "naive" to the Euro. It would (I think) include such things as currency acquired before obtaining German tax residence or currency received as a gift or (possibly) in payment for services. In general, any foreign currency that was not acquired by the exchange of Euro or the disposal of a capital asset is "naive" and has no established Euro basis until it loses its "virginity" through some act of commercial intercourse with the Eurozone. Thus, in your example, Jasper's foreign currency was "naive" to the Euro and thus acquired no Euro basis until it was used to purchase a security (a "capital asset" purchased with the intent to realize capital income). The (US and German) tax code regards the purchase as a two transactions: 1. The - fictitious - conversion of the foreign currency to its prevailing Euro value immediately prior to its use to purchase the security and 2. The subsequent actual purchase of the capital asset for that Euro value. If the currency is "naive", however, transaction 1 is not taxable because in Germany (until lately) the "naive" currency has no basis. (NB: Not so under US law.) If the currency is not "naive" there will be currency gain or loss on the fictitious conversion preceding the acquisition. But, regardless of the foreign currency's "naiveté", the rule quoted by Panda will always apply to transaction 2: the asset acquired will have a German tax basis equal to the Euro value of the foreign currency used to acquire it on the date it was acquired. If that security is then later sold for foreign currency, the exchange rate prevailing on the date of sale will govern the gain/loss on the sale of the security and the foreign currency proceeds, having now lost their virginity, will have acquired a Euro basis (with apologies to Hawthorne: they will wear an indelible scarlet "E") that will now have to be tracked on the taxpayer's books. A subsequent use of those stigmatized proceeds, e.g. to buy some other security - or an actual conversion to Euro - will thus trigger a currency gain or loss incident to that subsequent transaction. Hey! Who said taxes aren't sexy?
  4. How are joint accounts (outside of Germany) taxed?

    @endsee No. Unsolicited blanket disclosures of "return information" of the kind you postulate are streng verboten under IRC §6103. NB: "tax return information" is not the same as "income information". See: and specifically: Except in certain very narrowly drawn circumstances return information cannot even be shared with US government agencies (e.g. CBI) absent a court-order. Return information can be shared with treaty countries but only within the very strict limits of that treaty - usually as specifically requested by the foreign treaty partner and relayed from a US official.
  5. @VikingIII US based funds (AKA: regulated investment companies or "RIC"s) are tax-transparent. That is, their income and activities pass-through to their shareholders and the companies themselves pay no tax at the fund level. The character of their various types of income (long and short term gain, interest, dividends - qualified and ordinary, etc. etc.) and its tax source is preserved, i.e. flows through to the shareholders. This is the reason why Fidelity, Blackrock, etc. publish annual fact sheets showing the breakdown (usually in terms of the percentage of every USD distributed for each of their various funds. These fact sheets show the amount of income sourced to various US states for purposes of filing state returns; Federal and state governmental interest portion for purposes of claiming exemption from State or Federal tax respectively; and last, but not least, the foreign source portion of the distribution (normally without, however, a breakdown by foreign country). For the GFs (Godless Furriners), the funds (usually money market or bond funds) will also sometimes publish a fact sheet showing the Qualified Interest Income (QII) that under US domestic tax law is exempt from US taxation in the hands of GFs. All the above applies to the tax treatment of funds and their distributions under US tax law. A question that I have never been able to find an authoritative answer to is how any particular foreign country (e.g. Germany) regards these distributions in the hands of their respective taxpayers: Do they "pretend" the fund is tax opaque and everything it distributed is characterizable as a "dividend" paid by a US domestic corporation or do they treat those distributions the same way as US tax law and differentiate between different sources, character, etc. Although most US funds prohibit their sale to GFs (or even to US Citizens residing in Europe or the UK), inevitably, by hook or by crook, German tax residents will find themselves with the obligation to report income from US funds on their German returns. They will ordinarily receive a 1099-DIV from the fund (and/or a 1099-B if they sell funds during the year) that has all the detailed information about the nature of the distribution (and/or sale proceeds) a US taxpayer will need to accurately prepare a US tax return. Is that detailed information relevant to the Finanzamt? I just don't know. Perhaps @PandaMunich knows and would like to share.
  6. @PandaMunich wrote: Option 1, wildly prepaying US income tax will not bring you anything. The 15% US source tax has to be connected to the amount of US dividends. Option 2 will work, but the Finanzamt may decide not to issue the Bescheid until after you have brought proof of actually having paid this US source tax. They will ask for the "US Steuerkonto", i.e. for the transcript as proof: Hi Panda, The US does not impose or withhold a "source tax" on any US source investment income if the taxpayer is a US citizen or resident unless through some past tax misconduct the taxpayer is subject to "backup withholding" on all investment income - regardless of source. Even in the case of such "backup withholding" the amount withheld on a US citizen is not determinative of the actual tax owed; it is merely a Vorauszahlung. (Only the amount withheld on nonresident aliens operates as a flat tax (Abgeltungssteuer) and even then it may or may not be correct depending upon the treaty status of the nonresident). There is only one way to connect any amount of US income tax paid by a US citizen or resident (whether prepaid as estimated tax or postpaid with the return) to US-source dividend income and neither the tax return as filed or the IRS's transcript of that return will provide that information. An IRS "return transcript" itself is nothing more than the IRS's recording of what the taxpayer himself put on his return (with computerized math corrections if necessary). An IRS "account transcript" is more or less a simple chronology of activity related to a particular tax year: date of filing, date and amount of payment, penalty assessed, notice sent, etc. Other than the fact of some amount of dividend income the only relevant information either transcript establishes is that a US return was filed and some amount of tax was owed and/or paid. The return (Schedule B "Interest & Dividends") and the return transcript will show only "Dividends" and "Qualified Dividends". It will contain no information about the source of those dividends (U.S. or foreign). In order to "connect" the US tax owed/paid to US source dividends, the taxpayer (and of course the Finanzamt if they're serious about it) will have to see the following: 1. Annual detailed summary of dividend payments provided by the taxpayer's brokerage that identifies the payor of each dividend payment. That information will allow a determination as to the source of the dividends. (The US equivalent of an "Erträgnisaufstellung".) 2. In the case of blended US mutual funds, the 1099-DIV issued by the fund will show only foreign tax withheld (if any) but not the amount of foreign vs. US dividends. For that information, the mutual fund companies provide annual source information sheets that show percentages of such things as "US government source interest", "State sourced percentages" and, last but not least: "foreign source percentage" of the various distributions made by their various fund during the year. Once you have allocated all your US taxable dividend income to US and foreign source you can now proceed to the next step which is to allocate the US taxes owed/paid to that dividend income. (And don't forget: you will need to do the source allocation for both "qualified" and "ordinary" because the two are taxed differently.) Since most dividends (US and foreign) are "qualified dividends" that enjoy special maximum tax rates (15% - or 20% if you are a high-roller), the US tax computation can only be done using the IRS's "Qualified Dividends and capital gains worksheet": Plugging the dividend numbers into the worksheet allows you to compute and allocate the US taxes paid (if any) to both qualified and ordinary dividends (as opposed to long-term capital gains (also eligible for the 15%/20% max rates) and other types of "ordinary" income and then, using the source allocation percentages you computed earlier you can then further allocate those results to their US and foreign source components. Almost all US tax return preparation software will allow you to generate the worksheet and print it out. (If you don't use software then you will have to print out the worksheet from the Form 1040 instructions and fill it in yourself.) The worksheet is NOT filed with the return. The worksheet is NOT included in any IRS transcript. So, if the Finanzamt requires an IRS transcript for any purpose other than to merely verify that a US return was filed and tax was owed/paid, then, unless they also ask for the worksheet and the detailed dividend data, they are just pretending to verify that the Steuerzahler is entitled to a foreign tax credit on their US source dividend income.
  7. @VikingIII wrote: I realize US source bank interests go in Anlage KAP, whereas dividends from US source brokerages (from stock or bond mutual funds) go in KAP INV. However, there is no place to input tax paid to USA on US source dividends in KAP INV. The place to input tax (anrechenbare noch nicht /angerechnet Auslandishe Steurn) is on Anlage KAP. When I input tax information on this form WISO flags it, stating no income was reported on this form? Also should one input the actual tax paid (which is more than 15%) or only include 15% which per treaty is allows USA to tax on the dividends? Can someone clarify? I use WISO myself (and highly recommend it). Under "Sparer u. Vermieter" go to "Investmentfonds die nicht dem inländischen Steuer unterlegen haben". This is essentially the input mask for Anlage KAP INV. List each fund separately and since you will not have a German Bescheinigung to work from you will have to use the "Programunterstützt" method. This requires you to know what character your US fund has: stock, mixed, bond, etc. For example: you got $2,000 distribution from a US stock fund. Enter that amount into the mask and - assuming you actually paid or reasonably anticipate paying anything on the US source portion of those $2,000 enter that amount as "noch anzurechnende ausl. Steuer. To test the difficulty you report I stripped out all other Kapitalerträge of any kind in any amount, i.e. I entered only the $2,000 from the (fictitious) stock fund and entered $300 of fictitious creditable US taxes. The result: The software filled in Form KAP INV and showed $2,000 from a stock fund. It did not carry that figure to KAP or anywhere else but it did reduce that amount by 30% (Teilfreistellung for a stock fund) and included the reduced amount (1,400) in the Berechnung of §32d taxes. The $300 of US taxes was carried by the software automatically to Anlage KAP Line 41 and was duly credited in the computation of §32d taxes owed even though the rest of my test KAP was completely blank, i.e. only Line 41 had anything other than a zero. So, even though you have to jump around a bit to see the effects, WISO - as usual - gets everything right. Give it another try. In answer to your question about what amount to claim as a credit, see my earlier post above to Crane Baby.
  8. @Crane Baby wrote: if I understand your post, @endsee should 1. Report $5,000 on the German tax return and presumably pay somewhere around 26.375% in the 2022 return filed in 2023. Correct. Ordinary dividends will be reported on Anlage KAP 2. Report $5,000 somewhere in the US tax return and pay 15% in the 2022 return filed in 2023 after the German tax return was filed. Correct. $5,000 will show up on Schedule B. Whether 15% or any other tax will be owed is an open question. That will depend on whether the dividend is qualified or not and whether taxpayer's US taxable income is high enough to trigger any US tax or so high as to trigger the maximum 20% rate. When is the $450 (15% of $5,000) tax credit claimed? The German return was already filed. Does one file a correction in 2023? Does one claim the credit in 2024 on the 2023 return? Here I will have to defer to the expertise of @PandaMunich . My understanding, however, is that if the foreign (i.e. US) tax was not withheld from the dividend but rather paid with the return filed in the following calendar year, the amount owed (if any) would be eligible for credit on the German return even though not actually paid until the next year. For that reason, if you anticipate that whatever US tax you owe (and eventually pay) will be creditable against your German tax you should do one or both of the following: 1. Pay estimated US taxes on your investment income during the same calendar year in which you earn them, and/or 2. File your US return before filing your German return or, if that is not possible (e.g. because your US return will be claiming a foreign (i.e. German) tax credit for an as yet unknown amount, compute your estimated ACTUAL US taxes for the preceding year and use that figure on your German return. But a word of caution: Unless they are relatively high rollers, few US expatriates end up actually paying anything on their US source dividends/distributions and the German tax credit is not based on "coulda, woulda, shoulda, mighthave paid 15%" but rather, actually paid.
  9. @endsee You will report the EUR value of $5,000 on your German tax return. If the US actually imposes any tax on those dividends you can claim a foreign tax credit for those US taxes on your German return.