US Tax Returns - Significant Changes This Year

[Merican]

I did not know about the lower standard deduction for dependents. As you can see, there are huge gaps in my knowledge. I'm just a guy who tries to stay informed about US tax issues, mostly ones that apply to my specific case, so please don't take anything I say as advice. I am interested in learning about other cases though. We can try to find answers in IRS publications.

One of my children is not a dependent and has the standard deduction while the two others can be claimed as dependents so only have the lower $1050 deduction (their dividends are lower than this limit, too). I did not know that Form 1116 was not required, but if we didn't file it we would not be able to have a carryover for the dividend taxes paid in Japan, correct?

The way I understand it is if your dependent children only have a few hundred in dividends from an account in Japan, they would not be taxed by the US as they have the standard deduction. Whether they pay tax to Japan would be irrelevant.

The only reason I'm filing a 1040 in their name is that having filed FBAR's and their foreign dividends need to appear on some 1040 form. I would have thought they (the IRS? the Treasury department FBAR folks?) wouldn't know we'd met the requirement without that 8938

You can report dividends on form 1040 line 3b.

... but I guess you're saying I could get by next year with just the 1040, Schedule 6 and Schedule B. Is that correct?

As long as nothing else changes, I think that is all you would need to file next year. However, now that I think about it, people don't generally recommend that US citizens get Nisa accounts. I think there are issues with owning Japan based mutual funds as they are considered PFICs (Passive Foreign Investment Companies) and can have serious tax issues. Have you found a way around this issue?

[RetireJapan]

However, now that I think about it, people don't generally recommend that US citizens get Nisa accounts. I think there are issues with owning Japan based mutual funds as they are considered PFICs (Passive Foreign Investment Company) and can have serious issues. Have you found a way around this issue?

US citizens can buy individual Japanese shares in ordinary NISA accounts (not tsumitate NISA). These should not cause any problems with the IRS.

[TokyoWart]

I'm just a guy who tries to stay informed about US tax issues, mostly ones that apply to my specific case, so please don't take anything I say as advice.

I appreciate the discussion and recognize that I'm responsible for my return (and I made my kids sign their own returns ). In my experience, even tax professionals are often not aware of some of the issues we have as US expats filing from Japan so I think these discussions are helpful in focusing attention on where one needs professional help and what things to double-check.

I did a little more digging into Form 8938 filing requirements. As mentioned above the form isn't required unless the account values are above $200K/$300K when married filing jointly but for a single filer (like my kids) the requirement kicks in at account values of $50K at year-end and they did exceed that.
https://www.nolo.com/legal-encyclopedia ... eturn.html

The way I understand it is if your dependent children only have a few hundred in dividends from an account in Japan, they would not be taxed by the US as they have the standard deduction. Whether they pay tax to Japan would be irrelevant.

Yes and no. The "unused" tax credit for the taxes paid in Japan goes to a carryover table for up to 10 years. It can be used to offset US taxes due under certain circumstances (mostly if we moved to a very low tax country like Singapore or Saudi Arabia). In my kids' case most of their holdings were in Junior NISA accounts and weren't taxed in Japan but we started their accounts before the J-NISA was introduced and they have a few taxed dividends in Japan (the amounts are tiny and I don't plan on moving to Saudi Arabia but still... )

US citizens can buy individual Japanese shares in ordinary NISA accounts (not tsumitate NISA). These should not cause any problems with the IRS.

As RetireJapan mentions, we buy individual Japanese shares in our NISA accounts. It's worked out okay since the start of Abenomics but this is kind of risky. I try to use the experience to educate my boys about the stock market and investing.

[Merican]

TokyoWart, okay great. I'm glad we're on the same page. I really appreciate these kinds of discussions too as it's a great way to learn and be thorough. After you mentioned form 8939, I immediately asked myself if I should be filing that one too, and checked the form instructions. Excellent that you found a work around and that the PFIC rules do not apply to your kids' accounts!

The "unused" tax credit for the taxes paid in Japan goes to a carryover table for up to 10 years. It can be used to offset US taxes due under certain circumstances

That is interesting. Thanks for pointing it out. I will have to read up on that.

As mentioned above the form [8938] isn't required unless the account values are above $200K/$300K when married filing jointly but for a single filer (like my kids) the requirement kicks in at account values of $50K at year-end and they did exceed that.

The $50,000 threshold is for US residents. For Americans living abroad, the thresholds are higher ($200,000 on the last day of the tax year or more than $300,000 at any time during the tax year). Anyway, I don't think it's really a big deal if unnecessary forms get filed.

https://www.irs.gov/pub/irs-pdf/i8938.pdf

[captainspoke]

...
...For Americans living abroad, the thresholds are higher ($200,000 on the last day of the tax year or more than $300,000 at any time during the tax year). Anyway, I don't think it's really a big deal if unnecessary forms get filed.

https://www.irs.gov/pub/irs-pdf/i8938.pdf

Just reading the background here--and this is my understanding of the 8938 requirements. Turbotax does ask about this (accounts and levels). I explored further, and I'm not sure if I saw that same IRS pdf, but if not that, then something very similar.

[TokyoWart]

Thank you for the additional responses. It’s another reminder to me of how I can learn from these discussions. (Now if those J-NISA stocks would only jump in value to that $300K reporting threshold .)