Japan Tax Reporting of U.S Mutual Funds

[TokyoWart]

By the way, TokyoWart, do you know if stock sell capital losses can be used against stock sell capital gains?

Last year, the guy at the tax office said that I cannot use losses against gains for foreign stocks! In other words, no mercy!

At least for for a Tokutei-Kouza at SBI, this is not the case. For a foreign ETF, which I sold at loss I got the corresponding value credited to my JPY account. I would assume that SBI knows what they are doing. I remember something, that for Online Brokers, which are not registered in Japan, you can use losses againt capital gains - but I may be wrong on that.

I am referring to losses reported from a foreign account. The Japanese law on ability to use capital losses to offset capital gains and dividends refers specifically to brokerage firms located in Japan. If I have a loss on Amazon stock in my Nomura account it can be used to offset gains and dividends but if I report a loss on sale of Toyota stock in my Schwab account it can only offset capital gains reported from foreign accounts.

[mule96]

I am referring to losses reported from a foreign account. The Japanese law on ability to use capital losses to offset capital gains and dividends refers specifically to brokerage firms located in Japan. If I have a loss on Amazon stock in my Nomura account it can be used to offset gains and dividends but if I report a loss on sale of Toyota stock in my Schwab account it can only offset capital gains reported from foreign accounts.

I don't have that situation (yet), but good to know. In both cases, the tax-office guy from ichiokuen was probably wrong (except when it was the case when a capital loss was against dividends).

[ichiokuen]

My experience is that you can use foreign losses against foreign gains but not against dividends (foreign or Japanese) or Japanese capital gains.

Thanks!
Ok, I will take your word for it! I need to chop down these Covid March2020 panic sell gains. I'm sure I'll get a letter from the tax office letting me know how much more I owe if they decide to not accept losses.

[ichiokuen]

I am referring to losses reported from a foreign account. The Japanese law on ability to use capital losses to offset capital gains and dividends refers specifically to brokerage firms located in Japan. If I have a loss on Amazon stock in my Nomura account it can be used to offset gains and dividends but if I report a loss on sale of Toyota stock in my Schwab account it can only offset capital gains reported from foreign accounts.

I don't have that situation (yet), but good to know. In both cases, the tax-office guy from ichiokuen was probably wrong (except when it was the case when a capital loss was against dividends).

Yeah, let's keep our fingers crossed that he was wrong! I'd sure like to get that money back that I was forced to pay on my 2019 capital gains without being able to use my huge losses...it would have zeroed out.

[unagipants69]

Thanks for the very detailed post! This will help a lot of people.

Are you going to use the form 1116 to claim tax credits? Or did you claim tax credits in Japan?

Thanks again.

I will do my JP taxes first, then my US taxes. Only in my US taxes will I claim the FEIE and FTC (both).

Since I do my JP taxes first, there is no "foreign taxes credit" to be had, unless I were to do my US taxes first, and that's only assuming I'd even have tax to pay. The only foreign tax credit I will claim (on my JP tax return) will be for foreign taxes paid on distributions and capital gains for mutual funds which isn't much.

[Tkydon]

Thanks for the very detailed post! This will help a lot of people.

Are you going to use the form 1116 to claim tax credits? Or did you claim tax credits in Japan?

Thanks again.

I will do my JP taxes first, then my US taxes. Only in my US taxes will I claim the FEIE and FTC (both).

Since I do my JP taxes first, there is no "foreign taxes credit" to be had, unless I were to do my US taxes first, and that's only assuming I'd even have tax to pay. The only foreign tax credit I will claim (on my JP tax return) will be for foreign taxes paid on distributions and capital gains for mutual funds which isn't much.

You can go back and amend your Kakutei Shinkoku any time upto 3 years after filing.
Therefore, you should do your Japanese Taxes - Mar 15
Then do your US Taxes - Apr 15
Then revert to amend your Japanese Kakutei Shinkoku and enter your Foreign Tax Credit in Form B - Page 1 - Item 46.


On the subject of Capital Gains (mentioned earlier in the Thread)
Long Term Capital Gains only applies to Real Estate
Capital Gains on Stock and other Assets are only subject to standard Capital Gains, regardless of how long you hold the assets. The Long-Term deduction does not apply.
i.e. If you use the Aggregate Taxation Method (Form B - Pages 1&2 Only), your Capital Gains will be taxed at your Marginal Income Tax Rate X%, 2.1% of the Tax Amount for Reconstruction Tax and 10% Residential Taxes.
If you use the Separate Self-Assessment Taxation Method (Form B - Pages 1&2 And Page 3), your Capital Gains will be taxed at the Capital Gains Tax Rate 15%, 0.315% (i.e. 2.1% of 15%) Reconstruction Tax and 5% Residential Taxes.

[unagipants69]

Thanks for the very detailed post! This will help a lot of people.

Are you going to use the form 1116 to claim tax credits? Or did you claim tax credits in Japan?

Thanks again.

I will do my JP taxes first, then my US taxes. Only in my US taxes will I claim the FEIE and FTC (both).

Since I do my JP taxes first, there is no "foreign taxes credit" to be had, unless I were to do my US taxes first, and that's only assuming I'd even have tax to pay. The only foreign tax credit I will claim (on my JP tax return) will be for foreign taxes paid on distributions and capital gains for mutual funds which isn't much.

You can go back and amend your Kakutei Shinkoku any time upto 3 years after filing.
Therefore, you should do your Japanese Taxes - Mar 15
Then do your US Taxes - Apr 15
Then revert to amend your Japanese Kakutei Shinkoku and enter your Foreign Tax Credit in Form B - Page 1 - Item 46.


On the subject of Capital Gains (mentioned earlier in the Thread)
Long Term Capital Gains only applies to Real Estate
Capital Gains on Stock and other Assets are only subject to standard Capital Gains, regardless of how long you hold the assets. The Long-Term deduction does not apply.
i.e. If you use the Aggregate Taxation Method (Form B - Pages 1&2 Only), your Capital Gains will be taxed at your Marginal Income Tax Rate X%, 2.1% of the Tax Amount for Reconstruction Tax and 10% Residential Taxes.
If you use the Separate Self-Assessment Taxation Method (Form B - Pages 1&2 And Page 3), your Capital Gains will be taxed at the Capital Gains Tax Rate 15%, 0.315% (i.e. 2.1% of 15%) Reconstruction Tax and 5% Residential Taxes.

The issue I see is:

1. Do JP taxes. Get refund/pay tax.
2. Do US taxes. Get refund/pay tax.
3. Amend JP taxes. Adjust refund/pay.
4. Amend US taxes. Adjust refund/pay.

#3 and #4 continue to loop.

[TokyoWart]

1. Do JP taxes. Get refund/pay tax.
2. Do US taxes. Get refund/pay tax.
3. Amend JP taxes. Adjust refund/pay.
4. Amend US taxes. Adjust refund/pay.

In practice the way my accountants in the US and Japan handle this is to report tax payments on a cash basis rather than accrual basis. Both authorities are being informed of exactly how much net tax was paid (which will include any refunds received) in the other country during calendar year 2020 during the tax filings made in 2021. Any refunds received based on those FY2020 returns are reflected in the following year's tax filings because they affect net taxes paid during calendar year 2021.

[jovialg]

Sorry for coming into this late but I used this as a basis for trying to figure out how to file my taxes, where I have both mutual funds (unlisted securities) and stocks/etfs (listed securities on nyse).

2. 1099-DIV dividends and capital gains distributions were reported using the "aggregate taxation" method, or 総合課税. This is because I reported them as "unlisted" stock, which forces this taxation method. Good news is that I seem to be able to apply the "dividend credit", since it wasn't much (this credit cannot be used if you use the separate taxation method).

When you say "dividend credit" are you referring to 配当控除? If not, what do you mean?

In terms of the dividend deduction, I think you're not supposed to use this when the dividends are being paid out by foreign entities. According to No.1250 配当所得があるとき(配当控除)｜国税庁:

日本国内に本店のある法人から受ける剰余金の配当、利益の配当、剰余金の分配、金銭の分配、証券投資信託の収益の分配などで、確定申告において総合課税の適用を受けた配当所得に限られます。したがって、外国法人から受ける配当等は、配当控除の対象となりません。

My Japanese is not amazing but I intepret the bolded part as saying, "dividends paid out by foreign entities are not eligible for dividend deduction."

[Tkydon]

Sorry for coming into this late but I used this as a basis for trying to figure out how to file my taxes, where I have both mutual funds (unlisted securities) and stocks/etfs (listed securities on nyse).

2. 1099-DIV dividends and capital gains distributions were reported using the "aggregate taxation" method, or 総合課税. This is because I reported them as "unlisted" stock, which forces this taxation method. Good news is that I seem to be able to apply the "dividend credit", since it wasn't much (this credit cannot be used if you use the separate taxation method).

When you say "dividend credit" are you referring to 配当控除? If not, what do you mean?

In terms of the dividend deduction, I think you're not supposed to use this when the dividends are being paid out by foreign entities. According to No.1250 配当所得があるとき(配当控除)｜国税庁:

日本国内に本店のある法人から受ける剰余金の配当、利益の配当、剰余金の分配、金銭の分配、証券投資信託の収益の分配などで、確定申告において総合課税の適用を受けた配当所得に限られます。したがって、外国法人から受ける配当等は、配当控除の対象となりません。

My Japanese is not amazing but I intepret the bolded part as saying, "dividends paid out by foreign entities are not eligible for dividend deduction."

That is correct. The Dividend Credit Only applies to Japanese Companies' stocks, and it makes up for the difference between the Dividend Tax Rate and the Marginal Aggregate Income Tax Rate for lower income people, so they do not have to file as Separate Taxation Method.

It does not apply to foreign investments.

If you have Japanese Dividends and your Total Taxable Income is less than about Y6M, due to the Dividend Credit, it would be better to file the dividends as Aggregate Income. If your Total Taxable Income is more than about Y6M, it would be better to file the dividends as Separate Taxation Method Income.

If you have Foreign Dividends and your Total Taxable Income is less than about Y3M, it would be better to file the dividends as Aggregate Income. If your Total Taxable Income is more than about Y3M, due to the lack of Dividend Credit, it would be better to file the dividends as Separate Taxation Method Income.

The exact threshold will depend on your unique situation.