H1B Capital Gain tax on Foreign Stock

[pavan81]

Hello,

Just opened a Foreign stock trading account on fidelity for Japanese stock. I am told by fidelity that I will be issued a 1099 B just like I am for domestic stock for capital gains etc.

I am a H1B holder Indian Citizen here working here in US for the last few years. Now my question is do I need to report this income on taxes on the 1040 ? As i understand H1B s are not required to report world wide income on their US taxes. Further I have the NRI status in India , so I should not be paying taxes there either on any foreign income. I do not think Japan taxes foreigners either on capital gains (Do need to confirm this)

Basically are the capital gains on foreign stock considered as income in the country of the firm or the country of the broker. Logically I would assume it is in the country where the stock is. Anyone has any idea or experience on this?

[kabkaba]

If you are filing taxes as a US resident (1040 vs 1040NR), you are required to report your worldwide income. Moreover, foreign securities held in a local brokerage account constitutes US income.

[pavan81]

If you are filing taxes as a US resident (1040 vs 1040NR), you are required to report your worldwide income. Moreover, foreign securities held in a local brokerage account constitutes US income.

That is strange. Then I should get a brokerage account in a 3rd country and trade all stocks including US stocks through that.

I do not beilieve H1B s have to report world wide income even if filing 1040. There is difference between Resident Alien and Resident Alien for tax purposes. "You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for calendar year 2012 . "

"A resident alien's income is generally subject to
tax in the same manner as a U.S. citizen. If you
are a resident alien, you must report all interest,
dividends, wages, or other compensation for
services, income from rental property or royal-
ties, and other types of income on your U.S. tax
return. "

If this 2nd quote said "A resident alien for tax purposes is subject to ..." then it would mean I would have to. Even if my interprettation is wrong no H1 B holder till date has been prosecuted by IRS for not reporting world wide income.

[kabkaba]

In any IRS document, resident alien means resident for tax purposes. If you have also paid any taxes in a foreign country those are also reported and your US tax liability get reduced by that much. So effectively there is no double taxation.

There was a well publicized case from NJ where an Indian was prosecuted and even went to jail for hiding his income a couple of years ago.

[pavan81]

In any IRS document, resident alien means resident for tax purposes. If you have also paid any taxes in a foreign country those are also reported and your US tax liability get reduced by that much. So effectively there is no double taxation.

There was a well publicized case from NJ where an Indian was prosecuted and even went to jail for hiding his income a couple of years ago.

Thanks for the info kabkaba. Any link to that case? News article etc. Was it confirmed that the person was on H1B and it was foreign income that he had hidden?

In any case, my brother who is on F1 and will be filing 1040NR over the next few years will also like to invest. So I am guessing as long as he gets a brokerage account outside the US he does not pay any tax on gains? Anyone on F1 from India done this? having a brokerage account in a 3rd country? will gladly appreciate any help.

[kabkaba]

If he has not spent more than 5 tax years in F1 status, he can file as a non-resident. But he may still need to file taxes for the foreign account in that foreign country.