Can anyone help me estimate the Japanese tax amount for my U.S. mutual fund dividends?

[quesaisje]

Hi everyone,
I’m fairly new to the forum and am learning a lot. But one thing I didn’t realize (stupidly) is that I needed to declare my U.S. mutual fund dividends/capital gains, etc. on my Japanese tax forms. I had always thought (again, stupidly) that since I declared them on my U.S. tax forms and since everything was being automatically reinvested, that I didn’t need to, yet. I have been in Japan for well over a decade.

Anyway, I am now struggling to do this before the April 15 deadline. Yesterday, I went to my local (medium-sized city) tax office with my Japanese wife to get help filling out the 外国税額控除に関する明細書 form. The staff member who helped us was young and nice, but it certainly seemed like it was the first time he had done anything like this. He left us three times for extended periods to maybe ask questions or look up info. We had a 30-minute appointment reservation, but after spending 2 hours with us, he kind of needed to let us go. So, he did his best to explain to my wife how to fill out the form online. Before we left, we asked if he could give us a ballpark idea of how much in tax we’d have to pay. My situation, on my U.S. tax form, in a rough nutshell is this:

Tax-exempt interest (box 2a): $1,400
Qualified dividends (box 3a): $5,600

Ordinary dividends (box 3b): $9,500
Capital gains (box 7): $11,000
(so, total income (box 9) is $20,500)

He started adding everything up (including the tax-exempt interest and qualified dividends, which surprised me), and said that he thought the tax would be about ¥500,000, which absolutely floored me. On my U.S. taxes, I am used to getting the standard deduction and along with dependent deductions, I usually pay little or no extra tax on my investments. I know this is a different country/situation, but I was absolutely not expecting ¥500,000.

My question is, from everyone’s experience, does this seem right? Should I expect to have to pay around ¥500,000? If so, I’m going to need to get another part-time gig just to cover my investment taxes. My wife and I are planning to see a Japanese tax accountant on Saturday that was recommended by her employer, but I don’t think he really has experience with this kind of situation. My problem is also that I'm not totally sure which of the interest/dividend/capital gains categories I need to put into the 外国税額控除に関する明細書 form. I’ve really painted myself into a corner time wise on this. Any advice is very much appreciated. Thank you!

P.S. This is also the first year that I thought I needed to fill out the 国外財産調書 form since my U.S. assets have reached 5,000万. But the man at the tax office said that I only needed to fill it out if I received 5,000万 in assets within one fiscal year (not my total amount of assets). This seems totally wrong to me.

[captainspoke]

Hi,

Adding up your numbers, I get 27,500. Twenty percent of that is 5,500 (~20% is tax on dividends, interest and gains).

So, via that quick math, the estimate you got seems fairly close.

But dividends and interest need to be converted to yen at the exchange rate on the date they were paid, and obviously that varies thru the year. So something paid on 3/31/20, or 6/30/20, or any other date, will have a fractionally different exchange rate. (I use http://www.murc-kawasesouba.jp/fx/past_3month.php to get the TTM rate.)

Gains can be a little different. For gains paid out by a mutual fund, I think those count as a distribution (like a dividend), so f/x is calculated on the date paid. But for trading gains, like if you bought apple or something (even a mutual fund) five years ago and sold it last year, then you have to go back and figure your cost basis in yen on your purchase date, then another $>¥ conversion on the date of sale. For this, if the yen has gotten stronger/weaker between the two dates, your gain can vary accordingly.

And this last part:

P.S. This is also the first year that I thought I needed to fill out the 国外財産調書 form since my U.S. assets have reached 5,000万. But the man at the tax office said that I only needed to fill it out if I received 5,000万 in assets within one fiscal year (not my total amount of assets). This seems totally wrong to me.

...is wrong. Or rather your impression is correct. If you have ¥50M or above in assets, regardless of when you rec'd them, you need to do that report.

[quesaisje]

Thanks very much for your reply captainspoke, I appreciate it. My wife and I are trying to find the right webpage to start logging in the dividend information, and we are now having a difficult time finding the correct one. We think the page that the man at the tax office showed us might not be the right one for what we're trying to do. Do you or does anyone know the link for the Japan Tax page to start putting in the dividend information? That would be a huge help!

[captainspoke]

I don't do my taxes online--I instead go to the tax office and they walk me thru it. But I think it's the same in either case.

Here's what I "know": On the tax form(s), you don't list specific dividends, or specific interest payments--these are instead listed/itemized on a separate sheet, that is submitted on the side (as corroboration). This separate sheet gets submitted with my return, since I do it at the tax office; for electronic, there is certainly a way to mail in such extra forms, that will then be connected up by the tax office with your electronic return. (Same would be the case if you had medical expenses, there are some extra papers to submit when claiming those.)

What you do need for your actual tax return are the totals--total interest, total dividends (and other distributions, which I think includes mutual fund gains distributions), and then capital gains from actual trading. You have to do this yourself--it's your responsibility to do the calculations, and lay it out in a reasonable, understandable way.

So as for your return, you need a total figure for these things, but you also need to submit the corroborating sheets for the tax office to take a look at. And if you have gains or losses from actual trading, then you need two figures--your total cost(s), and then your total proceeds, those are listed/input into your return, and the difference--gain/loss)--is calculated from that.

*

Taking a break, may get back here with more details later...

[quesaisje]

Thank you again for your help. I`ve started to make the Excel Spreadsheet that you've recommended with the dividend/capital gains date, mutual fund ticker symbol, amount in U.S. dollars, the TTM for that date, and the Japanese yen amount. I have to say, this experience is making me a little bitter. It bothers me that Japan is taxing me for what the U.S. considers 'tax exempt income.' I am able to save maybe $15,000 a year, and to take a tax hit of over 500,000 yen for money that I'm automatically reinvesting and not taking distributions on is a real blow. That tax hit will probably only increase over time. Right now, I don't know what to do as far as investing moving forward, and I wish I knew if there were ways to mitigate the Japanese tax hit on these investments in the future.

Thanks again for your help, I appreciate it.

[captainspoke]

... Japan is taxing me for what the U.S. considers 'tax exempt income.'
... what to do as far as investing moving forward, and I wish I knew if there were ways to mitigate the Japanese tax hit on these investments in the future. ...

Even within the US--state to state--various types of money are taxed differently. Some have no income tax (and higher sales taxes), some tax social security and some don't, property tax varies widely even between communities. Municipal bonds. Car inspections vary from stringent to almost nonexistent. Qualified vs unqualified dividends, long vs short term gains. The mortgage deduction. Being able to deduct local/state taxes on federal returns (turmp limited that). Inheritance, gifts. Both japan and the US have their own exit taxes. And so on.

https://www.youtube.com/watch?v=th8lBCNRVKM

To mitigate taxes in both places, avoid trading, and lessen any ongoing payouts. While it may or may not be wise to sell something you already own, going forward you might look for 'tax efficiency'. Funds with the lowest turnover (often index funds) can also have the lowest gains distributions; growth funds pay less in dividends than others, esp. those that focus on dividends; some stocks pay no dividends (amazon, berkshire, etc).

Also, being US, tho you do have to file (forevermore), there's no 10% witholding by the US on your dividends (non US people complain about this). With the FEIE, a certain base level of dividends and gains slide by tax free there (and they don't have to be 'tax exempt' for that to happen.

Good luck!

[quesaisje]

Thanks a lot, I really appreciate you taking the time to help me out. Hoping I can do the same for someone else someday as I become more versed in this stuff. Thanks!

[TJKansai]

Hi everyone,
I’m fairly new to the forum and am learning a lot. But one thing I didn’t realize (stupidly) is that I needed to declare my U.S. mutual fund dividends/capital gains, etc. on my Japanese tax forms. I had always thought (again, stupidly) that since I declared them on my U.S. tax forms and since everything was being automatically reinvested, that I didn’t need to, yet. I have been in Japan for well over a decade.

Did the guy in the tax office indicate it was fine with you starting to declare this year, or did he suggest going back and re-doing taxes from past years?

I am curious, as I know quite a few people who have done what you did, filing in the US because they know their holdings are reported to the IRS. Most are earning just $1,000-$5,000 in dividends, and some have rental income. They generally have salaries in Japan that put them over the FEIE, so they are paying a bit of tax to the US.

[TJKansai]

With the FEIE, a certain base level of dividends and gains slide by tax free there (and they don't have to be 'tax exempt' for that to happen.

You have some great advice there, but I didn't understand what you meant by "the FEIE allows dividends and gains to go tax free." Isn't the FEIE only for earned income?

[quesaisje]

Did the guy in the tax office indicate it was fine with you starting to declare this year, or did he suggest going back and re-doing taxes from past years?

I am curious, as I know quite a few people who have done what you did, filing in the US because they know their holdings are reported to the IRS. Most are earning just $1,000-$5,000 in dividends, and some have rental income. They generally have salaries in Japan that put them over the FEIE, so they are paying a bit of tax to the US.

-He didn't say anything about it, although I'm wondering if they say anything when I try to turn in the forms next week. As for the FEIE, I'm a teacher and I've never gone over it yet.