Best way to avoid double taxation U.S. expat and Japanese spouse

[graben]

I am an American expat and my wife is Japanese. I have a existing Vanguard Roth IRA and registered my Japanese address and phone. Vanguard confirmed that I can also create a taxable account as well.

Since iDeCo and NISA seem bad/ not allowed for Americans would our best bet be to set them up in my wife's name only and after maxing them out invest the rest in my Vanguard taxable account that I would create since I could get exactly the funds I want with low fees?

Also for the iDeCo and NISA being bad for Americans is it because we get charged extra taxes by the IRS for investing in foreign stocks, or is it that we simply aren't allowed to create the account itself?

[jcc]

I'm not American so I've not needed to figure this stuff out myself but I'm relatively confident the below should be accurate:

Investing in your vanguard taxable account vs your wifes japanese taxable account at something like rakuten is going to have roughly the same costs assuming broad diversified investments.

I believe if you want to buy US stocks only you should do that in your vanguard account. That is going to get taxed twice(once in the US once in Japan) either way.

For any other non-us stock/fund/etc(assuming you and your wife have a properly set up legal agreement in case of divorce etc) you are probably better off investing it in your wifes account for both simplicity and tax efficiency(which generally counters the slightly higher management cost. We're down to .1% in quality funds now).

If you're not going to be moving money between the two of you though, you stick to a US account and your wife to a Japanese one. The difference is there but it isn't massive and it could save you a lot of headache if things don't pan out as well as you hope. Again, if you do shuffle money between the two of you, dot your i's and cross your t's. We'd all like to believe love is forever, but sometimes things just change.

[captainspoke]

... if you want to buy US stocks only you should do that in your vanguard account. That is going to get taxed twice(once in the US once in Japan) either way.
...

If OP claims the FEIE, they will effectively have zero income. Normal, US-domestic tax-filers would be adding gains and distributions to their regular, earned income, and so would pay taxes for that. I'm not sure of the exact threshold, but via the FEIE about ~$25k/yr in gains and dividends will go tax free in the US. The level will likely be affected by filing status--single, or married filing jointly. (Yes, OP will have to pay taxes here.)

Using the FTC (foreign tax credit) as an alternate to the FEIE has its own advantages/disadvantages. I've read that some filers prefer the FTC. One reason is that those people then have taxable income (unlike the FEIE), which then makes IRA contributions possible (no penalty, since it's after-tax income). I'm sure there are some other aspects/angles.

[TokyoWart]

Just wanted to borrow from captainspoke's post although I realize he's already aware of this:

If OP claims the FEIE, they will effectively have zero income. Normal, US-domestic tax-filers would be adding gains and distributions to their regular, earned income, and so would pay taxes for that. I'm not sure of the exact threshold, but via the FEIE about ~$25k/yr in gains and dividends will go tax free in the US. The level will likely be affected by filing status--single, or married filing jointly. (Yes, OP will have to pay taxes here.)

I've helped some family members with their US tax returns and what is striking to me is that the median taxpayer in the US is most likely in a 0% tax bracket for capital gains and dividends (and of course the median tax payer usually doesn't have much investment income). A good explanation of how FEIE affects capital gains and qualified dividend income tax rates is in this link:

https://www.gocurrycracker.com/feie-and ... arvesting/

Using the FTC (foreign tax credit) as an alternate to the FEIE has its own advantages/disadvantages. I've read that some filers prefer the FTC. One reason is that those people then have taxable income (unlike the FEIE), which then makes IRA contributions possible (no penalty, since it's after-tax income). I'm sure there are some other aspects/angles.

In addition to allowing IRA contributions, claiming FTC instead of FEIE can help expat filers who don't owe US taxes but need to show income to qualify for nonrefundable credits like the EITC. For some filers it can mean that they both don't pay any US taxes and get a payment from the IRS but because one of the requirements is living at least part of the year in the US qualifying can be difficult. Also some people find the rollover tax credit of the FTC useful especially if they move around between high- and low- tax foreign (non-US) countries.

[graben]

Thank you for all the replies, I appreciate it.

[captainspoke]

...
A good explanation of how FEIE affects capital gains and qualified dividend income tax rates is in this link:

https://www.gocurrycracker.com/feie-and ... arvesting/
...

Thanks for that link. I should probably have been googling that well before now and had some similar things already bookmarked.