Simple Strategy for US Citizen

[TokyoWart]

There are two separate issues here. One is Overseas Assets Reporting (OAR) which kicks in as a requirement above certain thresholds of Japanese or overseas assets. OAR itself does not create a tax payment but there can be a fine/jail term for not submitting it if you were supposed to. The second is reporting and paying taxes on investment income from outside Japan. If you ask the local tax office they will tell you that you still need to report the investment income (dividends, interest and net capital gains) on foreign assets even if you are below the thresholds for OAR if you are now counted as a resident of Japan for tax purposes.

[ichiokuen]

TokyoWart, thank you very much for clearing that up. Right after I posted that message, I went to the Japanese government offical tax site and searched for what I was looking for and basically they said the same thing as you're saying. What I could not find out was how to calculate the income. Say I earn $1,000 in income from dividends for the year, how would I translate that to Yen and pay tax on it if it's still sitting in the brokerage account in America?

Seperate question, if I were to use a dividend reinvestment program would I have to pay tax on the dividend or is it non-taxed( until taken out as capital, of course).

Thank you so much in advance!

[captainspoke]

Howdy!
Thank you all for your helpful comments.
I have been shrubbing all of the boards here to find a confirmation of the tax filing requirements for US based capital gains and dividend income and have only come avross this: https://journal.accj.or.jp/tax-overseas-assets/ which states that you do not need to file if you hold less than 50million yen in the overseas account.(This seems to have been reduced to 20million yen in 2015)
It seems that most people on this forum are filing Japan taxes for their US based capital gains and dividend income, so does that suggest that they are holding huge accounts or that the above webpage is wrong about the filing requirements? Sorry for such a long winded question!

The usual disclaimer--I'm not a CPA, nor a lawyer...

The link in your post seems to be dealing with the declaration of overseas assets, not taxes on what those assets might generate. These are two different things. (as @tokyowart indicated)

The declaration of overseas assets needs to be completed yearly if those combined assets have a value of ¥50,000,000 or more (I think as of the last day of the calendar year). I think this report is required (and its associated penalties if you fail to declare or misrepresent something) for inheritance tax purposes. I've heard that this was initially set up to prevent rich Japanese from moving and hiding assets overseas as they got older (before dying), but it has also caught a fair number of well-off expats, too--think people in banking/finance who are placed here for a 5+-year stint.

There is no ongoing tax on those declared assets. Tax only happens if you die (inheritance) or leave the country (exit tax).

**

However, if those assets are generating some kind of income, or trading gains (rental income, etc), then you do need to declare that, and yes, you'll be taxed on it. Eg., dividends and interest are tagged for a fraction/bit over 20%, and I think trading gains (or gains from real estate sales) are tacked onto your regular income, which together will place you in one tax bracket or another (and you'll pay accordingly). ((And if you're near the threshold where you'd change tax brackets, you might consider not taking gains that year, or being careful about the amount of those gains. Or, sell something else at a loss for an offset.))

Next, I've read that there is some wiggle room. Apparently (again, I'm not a CPA), up to ¥200,000 of miscellaneous income can go undeclared. But I'm not sure what falls in this category, and what might be excluded. If your dividends, interest, and gains are below that level, it may be okay to not declare them. Or, by their very nature you may be required to declare them, regardless of level/amount..! I don't know.

**

Regardless, this is clearly a misunderstanding that could cost you: (in back taxes and penalties)

...you do not need to file if you hold less than 50million yen in the overseas account.

You don't need to file a declaration of foreign assets if you have less than ¥50M total, but that declaration of assets is a very different thing than declaring the income/gains that might be generated by investing, say, ¥10-45M. IMO, foreign dividends, interest, and gains need to be reported, regardless.

**

One other thing. I'm assuming that you are a tax resident of Japan (been here five years or more). If you're not, the rules are a little different, and sorry, I don't know about that grey area.

Good luck!

[captainspoke]

...Say I earn $1,000 in income from dividends for the year, how would I translate that to Yen and pay tax on it if it's still sitting in the brokerage account in America? ...

I use an excel sheet. I list every distribution (dividends, interest, gains payouts, etc.) on the day that they were paid. So date, ticker symbol, amount paid in US$. Then I go to http://www.murc-kawasesouba.jp/fx/past_3month.php (use the date section below the initial calendars) and find the TTM rate for each specific date and list that. Using that, excel converts to yen, and then totals it at the bottom. I use separate columns for interest, dividends, and gains distributions. Interest paid does have its own separate spot on the tax form, and IIRC, divs and distributed gains get lumped together as 配当金.

If by chance the above site does not give a conversion rate for a specific date (e.g., January 2nd, and there are a few other holidays during the year), the tax office has advised me to back up to the first previously available TTM date.

Also, in addition to this chart, I throw in my monthly statements for the year, which allows them to check/confirm the numbers on the excel chart.

[captainspoke]

...Seperate question, if I were to use a dividend reinvestment program would I have to pay tax on the dividend or is it non-taxed( until taken out as capital, of course).
...

Personally, I never reinvest dividends. US ETFs (and I think funds/stocks in general) do not have "internally" reinvested dividends--a dividend is paid (a taxable event) and then additional shares are purchased.

While I do know excel to a certain degree, setting a sheet up to account for continued reinvestment would be a true PITA. If you later sell an ETF or stock that you have accumulated shares thru div reinvestment, figuring out your basis for your initial purchase, and then for all the small bits added quarterly, maybe over several years or longer, ...just yuk.

Again, personally, not my cup of tea.

[ichiokuen]

Thank you so much Captainspoke!
I also have never been interested in DRIPs as I would rather reevaluate if I actually want to put that money into the same stock or look for higher return elsewhere. I was interested in using DRIP for the ease of tax reporting, but if you are correct about there being no internally reinvested dividend stocks or funds out there, it would be a lost cause. I was always under the impression that there are DRIPs that do reinvest the divs internally.

Responding to your previous post about the Xcel sheet, Wow! That is a great idea and super effecient. It does seem like a lot of work though. Is it really required to use the TTM rate?

And lastly a new question, What about past returns that I didn't realize I needed to include foreign dividend earnings? Do I have to amend those? I just got through filing my streamlined US tax returns and the accountant that did them, saw my Japanese returns and my US returns(including the US brokerage account of course) and he didn't say anything about my underreporting.

Thanks again for your help!

[captainspoke]

Thank you so much Captainspoke!
(A) I also have never been interested in DRIPs as I would rather reevaluate if I actually want to put that money into the same stock or look for higher return elsewhere. (A') I was interested in using DRIP for the ease of tax reporting, but if you are correct about there being no internally reinvested dividend stocks or funds out there, it would be a lost cause. (B) I was always under the impression that there are DRIPs that do reinvest the divs internally.

Responding to your previous post about the Xcel sheet, Wow! That is a great idea and super effecient. It does seem like a lot of work though. (C) Is it really required to use the TTM rate?

(D) And lastly a new question, What about past returns that I didn't realize I needed to include foreign dividend earnings? Do I have to amend those? I just got through filing my streamlined US tax returns and the accountant that did them, saw my Japanese returns and my US returns(including the US brokerage account of course) and he didn't say anything about my underreporting.

Thanks again for your help!

A--that's my preference, too.

A'--I think you would have to check that Japan would recognize a non-Japanese internal DRIP thing.

B--Well, I learn something new every day, so perhaps so. But I'd still choose the "A" strategy.

C--that's what the tax office told me (after an audit/inspection!). I've read recently on reddit of people using TTS/TTB for buying/selling crypto, along with something about going to fiat or not, that I don't understand (beyond my pay grade). I don't understand crypto, either.

D--If you do owe US tax(es) on your investments there, I believe you can deduct that amount from your tax bill here. I do know that a few years ago I paid $369 to the US and got credit for that. Tho you may have gotten your US 2018 done early(?), I think if you go later than the mid-March J-deadline, you can deduct it here the following year.

Again, I'm not a CPA, and only have my own personal experience to go on. Tho that's quite a few years' experience, keep in mind that it's also idiosyncratic.

Edit: As for under-reporting in the past, your call. If the amount this year is not too large, they might accept it as something new. But if it's a more significant amount, it would be a reasonable guess that you likely had similar amounts in the past. The tax people will be easier on you if you're upfront with them (trying to be honest and acting in good faith). If they believe that you've been sly and hiding something, there could be penalties, in addition to back taxes and interest. You might try correcting the past three years (in addition to 2018). I think the max they go back is five.

Keep in mind that if your J-national taxes are adjusted/corrected, that will eventually filter back and your local/residential taxes will be corrected, too. (This would happen some months later, perhaps after you had thought that everything had been taken care of.)

[ichiokuen]

G'morning and thanks again!
So the only way to get that info(how to report div income) is to go through an audit? Wow! Seems like there would be some clear cut instructions somewhere... Have posted anything about that process(being audited)?

D- I did not owe any taxes on my divs in my US account, as I guess, we were using the FEIE. This is what is irking me the most, if I used the FEIE exclusion, and children/spouse exclusions, I can zero out my US taxes, which feels great, but Japan wants some of it, right?

Thanks again!
(My replies are delayed due to my being in the probation period)

[ichiokuen]

I guess the probation is over-cool!
Thanks for the edit. Great answer. I emailed my accountant and will see what he thinks about amending or not. I hear ya about being upfront and know from personal experience how they will update all the past tax info for state and local-down to the .001!

I'll let you know what the accountant advises, so hopefully anyone else following this discussion can make use of it and find out the best-est answer.

Would it be better to make this dividend income discussion a separate thread? It seems like this info will be under utilized being at the bottom of this thread. IDK, I am new to this!

[ichiokuen]

Here's the update:

The accountant says I should file the amendments. He also says that in order to file them he'll need the full regular fee of 30,000yen for each amendment!

This is the first time I have ever hired an accountant so am unfamiliar with the rules, but shouldn't he have found the discrepancies between my US and Japanese tax returns and asked me to change them before he went ahead and completed the returns? Or, would most accountants turn a blind eye like this?

Thanks