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us expat tax guide – france

How are capital gains on stocks and shares reported on a US tax return?

When US citizens or green card holders living in France make profits from stocks and shares, whether in French, US, or other international companies, they must declare these gains on their US tax return.

The tax rate applied depends on whether the investment is held short-term or long-term. Short-term investments, held for less than a year, are taxed at higher ordinary income tax rates, while long-term investments, held for more than a year, benefit from lower tax rates.

Short-Term Capital Gains are taxed according to your tax bracket, which can range from 10% to 37%.

The Tax Rate for Long-Term Capital Gains is 0%, 15%, or 20%, depending on your taxable income and filing status.

These rates significantly affect the tax you pay on investments. Long-term capital gains are generally taxed at a lower rate, providing an incentive to hold investments longer.

Can you deduct French taxes paid on these gains from your US tax liability?

Yes, if you’ve paid French taxes on capital gains, you can typically use these as a credit against your US tax liability, which helps avoid double taxation on the same income. This is applicable through the foreign tax credit, which is a crucial mechanism for US expatriates.

What happens if you invest in tax-advantaged French accounts?

If you invest in French accounts that are tax-advantaged and therefore do not require you to pay taxes in France on the gains, the US will tax the full amount of these gains. US tax laws do not recognize foreign tax-advantaged statuses, which can lead to unexpected tax liabilities for unwary investors.

Why might US citizens face difficulties with foreign mutual funds or ETFs?

Investing in foreign mutual funds or ETFs can be problematic for US taxpayers due to the Passive Foreign Investment Company (PFIC) rules. These investments are often taxed at a punitive rate, and gains can be taxed heavily, regardless of whether dividends are received. The complexity and potential high tax costs make it crucial for US expatriates to be well-informed before investing in non-US funds.

How are company shares received as part of compensation treated?

These options are usually considered a taxable event in the US, and the value at the time of exercise sets the cost basis. Later, when these shares are sold, any profit made over the cost basis is subject to capital gains tax, which might also be offset by any French taxes paid.

What should you do if you are considering selling shares or have already sold them?

Individuals holding stock options or considering selling shares should consult with a tax professional beforehand. This allows for proper planning and understanding of the potential tax implications. Preparing estimated tax calculations can also help manage financial expectations and avoid spending funds that might be needed for upcoming tax payments.

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