Tax Loss Harvesting

[TokyoWart]

I know we are all feeling the pain of watching plummeting account values but don’t miss this opportunity for tax loss harvesting in your taxable accounts. Rick Ferri has a nice (if US-oriented) description in the link from Forbes below. If you are not a US citizen you may not even have the same issues of wash sale rules because Japan seems to have a different approach. In addition realized capital losses in Japan can actually offset taxes we pay here for dividends. Just a reminder, there’s no such thing as tax loss harvesting in tax-privileged retirement accounts like a NISA so don’t try it there.

https://www.forbes.com/sites/rickferri/ ... b41bdb4e2a

[ichiokuen]

Thanks for the information.

In addition realized capital losses in Japan can actually offset taxes we pay here for dividends.

Would these Japan-based company generated capital losses offset US dividend income, or are you referring to only Japan-based company generated dividends?

I think you posted here before something about filing US taxes before filing Japanese taxes to take advantage of lower tax rates, but I can't find that post.

Since we cannot offset gains with losses when filing foreign earned capital gains (US for me) here in Japan, the only way around it would to be to file in the US first, then use the dual taxation rule to not have to pay again in Japan. Since I, unfortunately, haven't had more dividends or capital gains than exclusions, exempting me from paying US taxes, I've been having to pay foreign earned capital gains on my Japanese taxes on stock sales that would have been zeroed out on a US tax return! A double whammy! It really hurts!

[TokyoWart]

Would these Japan-based company generated capital losses offset US dividend income, or are you referring to only Japan-based company generated dividends?

Last year I was able to use a Japanese account capital loss help offset US dividend income for my Japanese return. The way it looks on my tax form, they first used the loss against the Japanese dividends in that same brokerage account and the remainder was able to partially offset some US dividend income.

I think you posted here before something about filing US taxes before filing Japanese taxes to take advantage of lower tax rates, but I can't find that post.

I might have been unclear. In March of this year I reported my 2019 US and Japanese dividend/capital gain income and 2019 earned (work) income on my Japanese return and also reported the US taxes I paid during 2019 (which were for 2018) using my 2018 US tax returns and quarterly tax payments I made during 2018 (for a technical reason I can't claim US Federal taxes paid on my Japanese salary in Japan --although people who are not corporate officers can do so-- but there are some US State taxes I can claim related to my financial activities). I have not found a way to prepare my 2019 US tax return in time to use it for the 2019 Japanese tax return. As best I can tell, the sequence of claiming doesn't make a difference because in all cases you eventually only report net taxes paid (i.e. you subtract any refunds when reporting the taxes you paid).

Since we cannot offset gains with losses when filing foreign earned capital gains (US for me) here in Japan, the only way around it would to be to file in the US first, then use the dual taxation rule to not have to pay again in Japan.Since I, unfortunately, haven't had more dividends or capital gains than exclusions, exempting me from paying US taxes, I've been having to pay foreign earned capital gains on my Japanese taxes on stock sales that would have been zeroed out on a US tax return! A double whammy! It really hurts!

Remember capital gains aren't "earned"; anything we discuss about dividends/capital gains is passive "unearned" income. If you are saying we cannot use excess capital losses to offset earned income in Japan, yes that is correct but you can still do so in the US up to that $3000 limit for married-filing jointly each year and those losses would be the net of capital losses from your combined US and Japanese accounts. Of course that will limit the amount of tax credit you can take in Japan on your US income taxes paid because you'll pay slightly less US taxes. If you are saying that when you file US taxes with your earned income and US/Japanese investment income you never have to pay any US taxes but Japan is still taking a bite out of the US investment income, then I would say that unfortunately doesn't surprize me. We do get double-taxed at least somewhat despite the claims of the Japan-US tax treaty.