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tax Q: calculating effective tax rate back home

 
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stumptowny



Joined: 29 May 2011
Posts: 219

PostPosted: Mon Jan 21, 2013 5:34 am    Post subject: tax Q: calculating effective tax rate back home Reply with quote

for glenski or anyone willing to share:

I am trying to figure my tax bracket back home for the purposes of taxes levied on short/long term capital gains. I am excluded from all income taxes with the earned income exclusion (EIE), however I still need an applicable tax rate for my brokerage account back home because my short and long term gains will be taxed regardless of the EIE.

have read that you take the tax rate you pay in your country of domicile (%10 in japan) and the rate you would normally fall into in your home country (%15 based on foreign income earned) then minus the japan rate from the american rate. so you are not double taxed. so my taxable rate that applies to short/long term capital gains is 5%?? this can't be, of course, because the lowest tax rate is 10%. So would I default to that rate?

thanks for your feedback...
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Inflames



Joined: 02 Apr 2006
Posts: 403

PostPosted: Mon Jan 21, 2013 3:13 pm    Post subject: Reply with quote

My understanding is that you pay the appropriate capital gains tax rate.

The IRS has their Free File program where you can have your taxes prepared and filed electronically for free - several of the preparers support the earned income exclusion.

I previously used H&R Block's Free File software and was marginally satisfied - it got the job done, but it had a huge flaw (it didn't have foreign earned income in the correct line). Now I just use it to ensure I'm paying capital gains and dividend taxes correctly and fill out the forms myself (which isn't too bad the first time).

Here's the link:
http://www.irs.gov/uac/Free-File%3A-Do-Your-Federal-Taxes-for-Free
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stumptowny



Joined: 29 May 2011
Posts: 219

PostPosted: Tue Jan 22, 2013 1:17 am    Post subject: Reply with quote

Inflames wrote:
My understanding is that you pay the appropriate capital gains tax rate.

The IRS has their Free File program where you can have your taxes prepared and filed electronically for free - several of the preparers support the earned income exclusion.

I previously used H&R Block's Free File software and was marginally satisfied - it got the job done, but it had a huge flaw (it didn't have foreign earned income in the correct line). Now I just use it to ensure I'm paying capital gains and dividend taxes correctly and fill out the forms myself (which isn't too bad the first time).

Here's the link:
http://www.irs.gov/uac/Free-File%3A-Do-Your-Federal-Taxes-for-Free


thanks inflames..

like you, I've always done them myself. I also have seen the IRS free file site. haven't looked at it in detail but I am sure it will be a matter of plugging in info from 1040 lines and 1099's. correct? so does it make filing truly paperless or do we still send in w2's (or the japanese equivalent) and 1099 copies anyway? I know USA and japan have tax info sharing privileges so it is possible to be truly paperless. have you used it? does it calculate your tax rate while living abroad as well? or does the HR block software you speak of calculate your rate?

my inquiry remains about my tax rate however. I invest a lot and planning my retirement, need to know how my rate will effect the exponentiation of compounding interest et. 20 years from now (the fun part!). that number in 20 years could be vastly different even if my tax rate is incorrect by 1 or 2%. monumental if off by 5% or more.. while the tax filing software will do it automatically, I really need to know this number. whether I calculate it or a software does matters not as long as I know it. if you know if the IRS or HR Block free file do this, please share..

in any case, your journey is further along than mine so i really appreciate your feedback. this is the first time filing from abroad for me. can I google the HR block Free file and get it from there?
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stumptowny



Joined: 29 May 2011
Posts: 219

PostPosted: Mon Feb 04, 2013 12:32 am    Post subject: Reply with quote

have done some more research..

regarding filing for free online

if you have any schedule D/C for capital gains tax, HR Block or the other companies are NOT FREE. they require payment for processing such forms.. the only FREE filing service for peeps with investment info to report is via the IRS free file forms themselves. basically the online version of the normal paper forms...

regarding converting foreign income into USD for calculating your tax rate back home...

Treasury Reporting Rates Of Exchange - Annual Average Rates

You must express the amounts you report on your U.S. tax return in U.S. dollars. If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U.S. dollars. How you do this depends on your functional currency. Your functional currency generally is the U.S. dollar unless you are required to use the currency of a foreign country. An exchange rate is the rate at which one currency may be converted into another, also called rate of exchange of foreign exchange rate or currency exchange rate.

To read more about exchange rates on the IRS web site, please visit the IRS website. The IRS will not post an exchange rate schedule on its website. Instead, you may use the U.S. Treasury rate from Financial Management Service (FMS) or exchange rates listed on the Federal Reserve website.

Federal Reserve Average $/Yen Exchange Rates (2009-2012)
YR2012 YR2011 YR2010 YR2009
$/Yen Rates 79.82 79.70 87.78 93.68


Source:
http://japan.usembassy.gov/e/acs/tacs-7126b.html
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