I have an Australian brokerage account. I put US dollars in there a year ago when the AUD/USD was like 78. Now it is like 92 and I was going to wire like $30K home to the US. There is a gain here, I suppose. Is it taxable. And if so, doesn't it mean that every foreign traveller has to declare a profit or loss on every round-trip foreign currency transaction. That can't be true, can it?
garagecapital wrote in news:507c3960-a2e0-4274- snipped-for-privacy@u10g2000prn.googlegroups.com:
I believe that "buying" foreign currency is like buying stock. If you sell at a profit, you have a capital gains, if at a loss, a capital loss.
It was annoying to have to translate ?9.65 interest received into $13.06, especially since the bank imposed ?15 fees (for the ATM card).
The gain on currency exchanges is taxable as a capital gain.
Are you sure? Here is 988 of the tax code:
In any case, money earned in the account (interest, dividends, capital gains) would have to be reported on the individual's tax return as earned. That would mean using a new exchange rate for each item of interest, dividend, or capital gain/loss received. So when the money is finally converted to US dollars, there would be different gains on each part of the money converted. For example, $10,000 might have been converted at 0.78, so when converted back to USD at a rate of .
92, so the profit is 10000*(.92-.78) or $1400 -- hope I got that right. But say at some point they received but say AUD 1000 in interest, and the exchange rate was 0.84, so the amount reported as interest would be $1190; and when converted to USD at .92, the profit would be 1190*(.92-.84) = $95. In a typical account with interest, dividends, capital gains this could get quite cumersome." snipped-for-privacy@yahoo.com" wrote in news: snipped-for-privacy@p25g2000hsf.googlegroups.com:
It sure does. But I didn't want too much of Father's inheritance to go to the IRS, but still follow the law.
What are you talking about?
" snipped-for-privacy@yahoo.com" wrote in news: snipped-for-privacy@71g2000hse.googlegroups.com:
You said it gets tedious to calculate cap gains ...
A foreign traveler who travels for personal reasons (e.g. vacation) doesn't get to take a capital loss on the currency transactions. If there's a gain he has to report it.
I choose to just hold the foreign currency. I have around 200 GBP that's worth about double what I paid. There's no tax, I still have the bills. When I visit the UK and spend them, there's still no tax.
Interesting question: Suppose my next trip to the UK is business, hence deductible. If I spend them on my hotel, do I deduct the cost of the bills, or their current value (when spent) and pay capital gains on the increase? If I spend them on meals (so only 50% deductible), what then? Is only half the capital gain reportable?
Seth
snipped-for-privacy@panix.com (Seth) wrote in news:fq73uo$qq5$ snipped-for-privacy@reader2.panix.com:
Not sure how you would realize a gain, but maybe there is a simple explanation.
Replace relevant nouns with Euro and Holland/France/Belgium. Use my Dutch account. No gain or loss (I think) when I use the money I inherited.
In the latter instance, I wouldd use my US credit card for larger payments, my US ATM card for cash. Separate transactions unrelated to my foreign currency holdings. Receipts and statements to prove my expenses.
The US tax code link I posted said there's no tax if the gain is less than $200.
It seems like a loophole if you can just spend appreciated foreign currency without worrying about taxes. Say I convert 12k USD to EUR while EUR/USD is 1.5 (to get me 8k EUR), wait for EUR/USD to fall to
2.0, then use the euros to buy stuff made in the USA and imported to Europe. Had I kept my 12k in the US, I might have been able to buy only 12 items, but with my 8k EUR I can buy 16 items (at the time of sale each item is 1000 USD or 500 EUR). I'm sure the IRS wants a piece of my gain.The following way makes sense to me: If you convert 12k to EUR for your business trip, the expense to the company would be 12k. If you pay your hotel bills with cash, you should save the receipts for records only, but even if EUR/USD goes to 2.0 during your trip, you still get to deduct only 12k. Now if you spent 2k EUR on meals and entertainment, then that is 3k USD even if the rates goes to 2.0 during yout trip, and only 50% or 1.5k USD is deductible on the business tax return.
" snipped-for-privacy@yahoo.com" wrote in news: snipped-for-privacy@s37g2000prg.googlegroups.com:
I don't see that in its generality. Specifics would work better.
I think there are different factors here. Changes in exchange rates don't go quite that fast, generally speaking, and in Europe you would have to pay for transportation of the item(s) from the US. Plus most likely the European sales tax (VAT of 20%, roughly). All that would eat up quite a bit of the currency gain. Then, in many states of the US, you would have to pay use tax on out of state bought items. I'm not even mentioning a portion of the costs of the trip.
I still don't see the reasoning here. You'd have to prove that it is cheaper to make a trip and purchase those items than it would have been to purchase them straight in the US. Do you have a concrete example?
He goes to England and buys a bunch of GBP at $1.20. He spends most of them, has GBP 100 left when he returns home. The dollar crashes, and his GBP 100 is worth $200. He sells it to a bank for $180.
Right (provided you don't spend the money on USD; I don't know what happens if you spend the money buying some other currency.)
Sure, that's one way to handle it. (But if I don't have any personal expenses on the trip and want to use up my GBP, that doesn't help.)
Seth
Sometimes they do.
They fit in my suitcase.
That's refunded when I export the items from Europe.
Matching the sales tax if I bought it locally, so no swing.
No, they don't. You don't have any gain, you just bought some stuff cheaper. Now, if you sell the 16 items in the US for $1600, then you have a gain.
I don't have to prove anything.
Maybe the trip was for some other purpose (and paid for by someone else), and I just happened to buy some stuff while I was there.
What do you want, the serial numbers of the items?
Seth
Oh, I forgot, there are excise taxes when you bring the goods into the US. On personal returns, excise taxes are not deductible on Schedule A. I don't know about business returns. As an example of the size of excise taxes, what is the approximate excise tax rate for clothing?
This is a good point. I believe Berkshire Hathaway converted billions of dollars to euros many years ago, so if they use that money to buy US companies, how do they pay taxes? I imagine that if they buy companies on the US exchanges they would have to convert euros to dollars and pay taxes on fhe currency gain, but if they buy the US companies on the European exchange there would be no tax consequences. But like I mentioned earlier, the tracking of the basis of each element of currency is too complex; in the case where they buy a company E on the European exchange, when they sell the company they have a gain/loss not only on the company E, but also on the currency that was used to buy E.. Perhaps there is a simpler way to do all this tracking. I think if the IRS requires you to track things this way, there's too much room to fib, and the administrative burden is enormous.
And finally, are business tax returns of public companies a matter of public record? I only see the balance sheet, income statement, cash flow, all of which are lacking in meaty details.
0% on the first $400, no more than 10% on the next $1,000 (as of the last time I checked, so the limits might have increased). That's for stuff you carry with out after having been out of the US for over a day.
If they just buy, no taxes. Their basis for the stuff they buy with euros is the cost of the euros.
That's right.
I'm sure they have lots of accountants to handle it.
No, they have a single gain/loss: the basis includes the currency cost.
There is a lot of room to fib.
The administrative burden is already enormous, what's a little more enormity?
Look at the SEC filings, which I believe have a bit more than that. I don't believe the full tax returns are available, there's confidential data in them.
Seth
snipped-for-privacy@panix.com (Seth) wrote in news:fq9adl$8qd$ snipped-for-privacy@reader2.panix.com:
While I think that currently the American dollar is badly mismanaged, I'd hate to think that it is possible that in the course of a "trip" to England the dollar would devalue by 50%. It really took more than 10 years for the ? to go from $0.82 to $1.52. Nevertheless, if I come into possession of foreign currency when it is worth $0.82, keep it, then sell it at $1.52, I have $0.70 capital gains, to be reported as such when the sale is final, and corrected for basis and costs. I just don't know whether the fees assessed for having an ATM card with the bank holding the foreign currency would be part of the "basis and costs".
I don't know either. Is that barter, or wash sale or what? I can easily visualize going to France with a bunch of ? purchased at 1 rate of exchange, then going to Denamrk and England, where I would have to exchange ? for local currencies. I would argue that I have not converted back to $, therfore not realized a gain or loss (latter more likely for short trips, because of the fees and distorted exchange rates for tourists).
The amounts of foreign currency I usually carry when leaving and reentering the US are rather trivial. Most transactions are by credit card or ATM card. But then, I have the philosophy that I don't like giving banks fees for the privilege of getting currency at a bad exchange rate. Therefore, I don't get foreign currency in the US prior to a trip abroad. Now I have to admit that recently credit cards have increased their fees for exchanging currencies, so ther may be a "better" way than my way, but I'd hate to leave the US with a lot of currency for fear of loss or theft.
What's the relevance of your hating to think something to the tax implications? (Maybe the cash was left in his suitcase for a year after the trip.)
For having the card, I don't know. The fees for using it are part of the cost basis of the foreign currency.
It's not a wash sale.
Sometimes I exchange currency with a foreign tourist entering the US. We both pay the middle rate, no fees.
But the issue is the tax situation when certain events happen, not whether those transactions are optimal (from whatever viewpoint).
Seth
snipped-for-privacy@panix.com (Seth) wrote in news:fqc8m1$7c7$ snipped-for-privacy@reader2.panix.com:
Forgive me my musings, it is indeed the tax implications that count, which in this case is capital gains (or losses).
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