U.S. EXPAT TAX GUIDE – CHILE
How do I report capital gains from stocks, shares, and crypto on US taxes?
US citizens and green card holders must report capital gains from investments like stocks, shares, and cryptocurrency on their tax returns, even if they live abroad or hold these assets in another country. The IRS requires detailed reporting to ensure compliance.
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What are capital gains, and how are they calculated?
Capital gains happen when you sell an asset for more than you paid for it, while a loss occurs when you sell it for less. Here’s how to calculate your gain or loss:
- Cost basis: The original purchase price, including fees.
- Sale price: The amount you received from the sale.
- Capital gain or loss: Sale price minus the cost basis.
Example:
If you purchased stocks for US$5,000 and sold them for US$8,000, your capital gain is US$3,000. If sold for US$4,000, it’s a US$1,000 loss.
What’s the difference between long-term and short-term gains?
The IRS taxes capital gains differently depending on how long you held the asset:
- Long-term gains: Investments held for more than one year are taxed at lower rates of 0%, 15%, or 20%, depending on your income.
- Short-term gains: Investments held for one year or less are taxed as regular income, which is typically at a higher rate.
How does the IRS treat capital losses?
Capital losses can help reduce your tax bill by offsetting gains or lowering taxable income:
- Offset against gains: Losses can directly reduce taxable gains. For instance, if you had a US$3,000 gain and a US$2,000 loss, only US$1,000 would be taxable.
- Carry forward losses: If losses exceed gains, you can carry the remaining loss to future years to reduce taxes on future gains.
How is cryptocurrency taxed?
Cryptocurrency transactions are treated like stocks or shares for tax purposes. Every time you sell, trade, or use cryptocurrency, it creates a taxable event. Holding cryptocurrency without selling does not trigger taxes.
Example:
If you bought Bitcoin for US$10,000 and later sold it for US$20,000, the US$10,000 profit is a capital gain. The same long-term and short-term rules apply based on how long you held the asset.
How does Chilean taxation affect US taxes?
If you live in Chile and pay local taxes on investment gains, you may qualify for the Foreign Tax Credit (FTC) to reduce your US tax bill. This credit prevents double taxation by allowing you to subtract Chilean taxes paid from the US taxes owed on the same income.
How do I report capital gains to the IRS?
To report your capital gains or losses, follow these steps:
- Use Schedule D: This form summarizes your total capital gains and losses.
- Complete Form 8949: List all individual transactions, including the dates, amounts, and whether they qualify as short-term or long-term gains.
- Separate long-term and short-term gains: Ensure accurate reporting for the correct tax rates.
- Claim the Foreign Tax Credit: If you paid taxes abroad, file Form 1116 to apply the credit.
What happens if I don’t report gains?
Failing to report capital gains can result in penalties, additional taxes, and increased scrutiny from the IRS. Keeping accurate records of purchases, sales, and any taxes paid abroad ensures compliance and simplifies filing.
Do I pay both US and Chilean taxes?
While you may owe taxes in both countries, the Foreign Tax Credit usually offsets your US liability. In most cases, you pay taxes in Chile first, then claim the credit to avoid double taxation. With proper planning, you can often eliminate or significantly reduce US taxes on foreign gains.
How does paying taxes in Chile affect US tax obligations?
For US citizens and green card holders living in Chile, it is important to understand how Chilean and US tax rules work together. The US requires you to report your worldwide income on your tax return, even if you pay taxes in Chile.
How does Chile tax income?
Chile taxes residents on their worldwide income and non-residents only on income earned in Chile. Tax rates are progressive, ranging from 0% to 40%. If you are self-employed or employed in Chile, you also contribute to Chile’s social security system, which covers health and retirement benefits.
Why partner with a specialist Expat accountant?
Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in Germany. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.
