From
the perspective of the Internal Revenue Service, if you sell your foreign stock
at a gain, you will have to pay tax in the same manner as if you had taken a
profit on an American stock.
If you hold your stock for less than a year
before selling it, your profit will be taxed at the ordinary income tax rates. If
you hold your stock for a year or more before you sell it, such gains will be
able to qualify for a lower capital gains rate.
To report this sale in TurboTax, log into your tax return and type "investment income
(gains and losses)" in the search bar then select "jump to investment
income (gains and losses)". TurboTax will guide you in entering this
information. See attached screenshot #1.
Additionally, you can get to this
section using the following steps:
1.
In Turbo Tax Premier Desktop
version, once you are in your tax return, click on the “Federal Taxes” tab
("Personal" tab in TurboTax Home & Business)
2.
Next click on “Wages & Income”
("Personal Income" tab in TurboTax Home & Business)
3.
Next click on “I’ll choose what I
work on”
4.
Scroll down the screen until to come
to the section “Investment Income”
5.
Choose “Stocks, Mutual Funds, Bonds,
Other” and select “start’ (or “update” is you have already worked on this
section)
If
you pay foreign taxes on the foreign stock transaction, you will be allowed
an offset for these foreign taxes on your US tax return. If you take
a foreign tax credit, your US tax liability will be reduced by the amount of
taxes that you would have paid if the transaction took place in the US (see this link Claim
Foreign Tax Credit).
If you take a foreign tax deduction on Schedule A, you will be allowed to
deduct the full amount of the foreign taxes paid but you will need to itemize
(which could limit your ability to take the full deduction). The TurboTax
software will help you determine which of these options will lower your overall
tax liability.
Once you determine the amount of your gain on
the sale, you will need to convert the gain from the foreign currency to US
dollar (using a daily exchange rate at the time of both the purchase and the
sale). Currently the maximum capital gains rate in the US is 20%. Depending on
your tax bracket, you may owe more than 20% due to such factors as Alternative
Minimum Tax (AMT) and the additional Net Investment Income Tax (NIIT) of 3.8%.
