# taxes on stocks sold in Germany????



## marti (Jun 16, 2008)

Hi, 
We are totally shocked about what happened to us. Has anyone experienced the same? Can anyone help?

We are L1 visa - expatriates from Germany. We came to the US in 2006 and have filed our second tax return this year. We sold securities from our German account last year which we had bought a long time ago – before we moved to the US. Our tax consultant based her calculations on the Dollar exchange rate from the time when we bought and the rate from the time when we sold the securities. So a loss or a small gain in Euros in her calculations turned out to be a huge gain in Dollars. But we never realized this gain. Immediately after selling the securities in Euros in Germany, we invested the money again in Germany. The money never left our German Euro-account and we never realized the gain in Dollars.

We cannot believe that US tax law works like that. Is there any way we could calculate the amount differently, e.g. base the calculation on only one exchange rate or convert the Euro amount of the gain/ loss into Dollars? On the IRS website it says a qualified business unit (QBU) can be dealt with differently – does our account qualify for that?

If you can help we would really appreciate that. Thank you!!!


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## Bevdeforges (Nov 16, 2007)

marti said:


> Hi,
> We cannot believe that US tax law works like that. Is there any way we could calculate the amount differently, e.g. base the calculation on only one exchange rate or convert the Euro amount of the gain/ loss into Dollars? On the IRS website it says a qualified business unit (QBU) can be dealt with differently – does our account qualify for that?


Unfortunately, that's exactly how US tax law works. You have to translate your sales and buying prices at the dates of the transaction - and given how the dollar has been falling, you wind up paying taxes on not only the euro gain or loss, but also the exchange gain (or loss).

I'm not familiar with the qualified business unit, but you may want to ask your tax accountant about it, just to be sure. I suspect that it would have to have been established before your sale of the stock to qualify for any special treatment, but it can't hurt to ask. You may also want to ask your tax accountant for advice about making future sales of your German stocks to avoid getting stung again.
Cheers,
Bev


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## twostep (Apr 3, 2008)

Capital gains tax applies in US and DE. You write you did not realize the gain but reinvested it. You did not cash out but used the gain to purchase stock. You did realize it. It is pretty straight forward tax reporting. Have you considered changing CPAs?


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## synthia (Apr 18, 2007)

Do you have to pay German taxes as well? If so, ask your accountant whether there is an offset in one direction or the other.


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## twostep (Apr 3, 2008)

synthia said:


> Do you have to pay German taxes as well? If so, ask your accountant whether there is an offset in one direction or the other.


There is no double taxation just reporting. The rate is about the same on both sides of the pond. Stickershock sets in when conversion rates are involved and see your gains disappear.


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## marti (Jun 16, 2008)

Thank you, Bev. It seems we made a huge mistake. 



Bevdeforges said:


> Unfortunately, that's exactly how US tax law works. You have to translate your sales and buying prices at the dates of the transaction - and given how the dollar has been falling, you wind up paying taxes on not only the euro gain or loss, but also the exchange gain (or loss).
> 
> I'm not familiar with the qualified business unit, but you may want to ask your tax accountant about it, just to be sure. I suspect that it would have to have been established before your sale of the stock to qualify for any special treatment, but it can't hurt to ask. You may also want to ask your tax accountant for advice about making future sales of your German stocks to avoid getting stung again.
> Cheers,
> Bev


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## marti (Jun 16, 2008)

I don't think I agree. Let me give you an example. Let's take one stock that had a gain of 300 Euros. That was over 3000 in Dollars. We reinvested the 300 Euros in Germany right away. We never realized the rest ($ 2700), but we had to pay taxes for it. 
Now I see it was stupid to sell and reinvest, but somehow the way we were taxed does not seem to be fair. Well, now I know better.



twostep said:


> Capital gains tax applies in US and DE. You write you did not realize the gain but reinvested it. You did not cash out but used the gain to purchase stock. You did realize it. It is pretty straight forward tax reporting. Have you considered changing CPAs?


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## twostep (Apr 3, 2008)

marti said:


> I don't think I agree. Let me give you an example. Let's take one stock that had a gain of 300 Euros. That was over 3000 in Dollars. We reinvested the 300 Euros in Germany right away. We never realized the rest ($ 2700), but we had to pay taxes for it.
> Now I see it was stupid to sell and reinvest, but somehow the way we were taxed does not seem to be fair. Well, now I know better.


I cannot follow you here. Your stock gained 300 Euros but it was over 3000 US $? Can you explain please?

Wait until Soli comes into effect:>(


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## Bevdeforges (Nov 16, 2007)

twostep said:


> I cannot follow you here. Your stock gained 300 Euros but it was over 3000 US $? Can you explain please?
> 
> Wait until Soli comes into effect:>(


Problem is, if he bought the stock "years ago" (as I think he said in the original post), you have to work with the exchange rate at that time when filing US taxes. I'm not sure what the Germans did about basis prices when we all went to euros in 2002, but I can tell you it only complicates the picture if his basis is in DM and the sale was in euros.

Normally, an investment broker would advise someone to sell off (and reinvest) some stock that was showing a loss in the same year to cushion the tax bite. But a tax accountant handed the sale as a fait accompli really doesn't have any options.
Cheers,
Bev


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## marti (Jun 16, 2008)

twostep said:


> I cannot follow you here. Your stock gained 300 Euros but it was over 3000 US $? Can you explain please?
> 
> Wait until Soli comes into effect:>(


If you take the Dollar exchange rate from the time the stock was bought and the Dollar exchange rate from the time it was sold, you get 3000 Dollars. In Euros the gain was just 300. (We bought the stock in Euros while in Germany let's say for 10,000 Euros, sold it there for 10,300 Euros, so we gained 300 Euros. Then we immediately reinvested 10,300 Euros in Germany in Euros.). So the Dollar gain is just a theoretical one - due to the exchange rate! As we never transferred the money to the US to profit from the exchange rate gain, we never realized it. But we still have to pay taxes in the US for 3000 theoretical Dollars! Isn't that terrible?


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## twostep (Apr 3, 2008)

Bevdeforges said:


> Problem is, if he bought the stock "years ago" (as I think he said in the original post), you have to work with the exchange rate at that time when filing US taxes. I'm not sure what the Germans did about basis prices when we all went to euros in 2002, but I can tell you it only complicates the picture if his basis is in DM and the sale was in euros.
> 
> Normally, an investment broker would advise someone to sell off (and reinvest) some stock that was showing a loss in the same year to cushion the tax bite. But a tax accountant handed the sale as a fait accompli really doesn't have any options.
> Cheers,
> Bev


Even in DM - 10:1???
Let's be realistic - on roughly 3k you loose 1/3. If it throws you into a different tax bracket - oops.


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## Bevdeforges (Nov 16, 2007)

twostep - being an accountant, I'm used to people sometimes speaking (or writing) in haste and confusing the technicalities of a transaction. The point is that the US tax is based on an amount of money (in dollars) that he never saw. Basically, he's being taxed on paper profits - and what's worse, because he immediately re-invested the money in Germany, he has to dig into his own pocket in US dollars to pay the taxes to the IRS.

Been there - though on the other side of the equation, filing US taxes from overseas or reporting US earnings for my European tax returns. It's frustrating, to say the least.

Marti - if it's any consolation, you're hardly the first foreigner to get tripped up on what seems to be a simple transaction in US taxes. Next time you'll be aware, and perhaps you can take a loss on something to cushion the large gain. It's how it's done for US investors (and French ones, too, as it turns out).
Cheers,
Bev


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## twostep (Apr 3, 2008)

I know Bev:>) Been there, threw a tantrum, hired a cpa.


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## marti (Jun 16, 2008)

Bevdeforges said:


> twostep - being an accountant, I'm used to people sometimes speaking (or writing) in haste and confusing the technicalities of a transaction. The point is that the US tax is based on an amount of money (in dollars) that he never saw. Basically, he's being taxed on paper profits - and what's worse, because he immediately re-invested the money in Germany, he has to dig into his own pocket in US dollars to pay the taxes to the IRS.
> 
> Been there - though on the other side of the equation, filing US taxes from overseas or reporting US earnings for my European tax returns. It's frustrating, to say the least.
> 
> ...


Thanks for your help, Bev. 
I was wondering - if so many foreigners get trapped, isn't there any way to warn them? Do you know how to reach most of the expats in the US?


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## Bevdeforges (Nov 16, 2007)

marti said:


> Do you know how to reach most of the expats in the US?


If I did, I'd probably be a very rich woman.  But I suspect that every country's tax laws have unpleasant "surprises" like this for the newcomer.

Most US expats overseas don't realize that they will have to file US taxes for the rest of their lives, no matter where they live and no matter what other country's taxes they have to pay.
Cheers,
Bev


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## synthia (Apr 18, 2007)

There are a lot of people with American citizenship that have never lived in America and don't realize they owe taxes on their income. A child of an expat, born and raised in another country, for instance. I met someone the other day that was born in the US. His parents left the US when he was two, and he has a US passport, and had no idea he should be filing tax returns.


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## Bevdeforges (Nov 16, 2007)

synthia said:


> T I met someone the other day that was born in the US. His parents left the US when he was two, and he has a US passport, and had no idea he should be filing tax returns.


Even worse (at least IMO) are the US citizens born overseas, who have never lived in the US - other than vacations back to see Mom or Dad's family - who are supposed to be filing taxes.

I know of one family where the kids all have dual nationalities because of Mom's US nationality. She was heartbroken when her grown son decided to set up his own business in the country where he had been raised, and decided that, "just in case" he had better renounce his US citizenship so as not to run into any tax issues.
Cheers,
Bev


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## twostep (Apr 3, 2008)

Marti I assume you had help for your visa process. What surprises me is that potential issues such as income reporting were not brought to your attention.

Bev - what is so shocking about not making the US one's center of life?


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## Bevdeforges (Nov 16, 2007)

twostep said:


> Marti I assume you had help for your visa process. What surprises me is that potential issues such as income reporting were not brought to your attention.


While many job transfers take things like income taxes into account, I don't think I've ever really heard of any expat getting upfront financial advice to explain the differences between the cultures. 

I moved over here to France and have a US IRA and 401K back in the US. Even at a tax seminar here in Paris, organized by some hot shot (and VERY expensive) dual qualified (French and American) tax attorneys, they were very vague on how to handle the US retirement accounts for French taxes (particularly the wealth tax here). I happened onto a section of French tax law that keeps my retirement funds out of consideration (at least for now) for my French taxes - by declaring them as a form of life insurance.

It's not easy knowing what "oddities" of US tax law a newly arrived foreigner needs to know. And once he's sold the stock (or whatever) it's often not possible to shelter the transaction.



> Bev - what is so shocking about not making the US one's center of life?


You forgot to add a  - When you don't live there, it's amazing what a strange place it can seem.
Cheers,
Bev


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## twostep (Apr 3, 2008)

Bev - a number of US/German firms "importing" talent on a senior level consider this just part of the relocation package nowadays.

On the other hand - investors have to stay informed. The market is not what it was prior to The Net.


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