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written by reader Assumptions about Capital Gains Tax

By lumpified, November 29, 2016

Hello people!
Thanks in part to Stock Gumshoe and in part to dumb luck, I find myself facing a new situation this year: Profitability!
And being a a small-time beginner I have no idea what to do about it!

I list my assumptions below to see if anyone can tell me if I am more or less correct. I’m fully aware that I will need the help of a professional, but it would be great if I can at least ask them the right questions!

Assumption 1: The capital gain happens the moment Interactive Brokers says ”filled” and it makes no difference whether I reinvest profits, keep them in the IB account or transfer them to a bank account.

Assumption 2: As a Brit living in Spain, what determines where I pay tax is a) where I pay normal income tax (Spain) , or maybe b) where I told IB I was resident. (Spain)

Assumption 3: That it makes no difference that most of the funds that went into IB in the first place came from my UK bank account.

Assumption 4: That brokers do not run to Governments with details of my transactions but will supply them if asked, so I should get proactive and sort it all out to avoid trouble in the future.

Assumption 5: That I can subtract capital losses from capital gains to get the total on which I have to pay tax.

Many thanks for reading. Apologies if it’s all laid out somewhere. I did try searching, but maybe it’s assumed that everyone here is a grown-up with an accountant, unlike myself!

Best wishes,
Ian

This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.

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Travis Johnson, Stock Gumshoe
Admin

Hi Ian,
I certainly can’t provide tax guidance, and I don’t know what the tax system is in either Spain or England.

Here in the US, the situation is this: If you are investing in a taxable account (i.e., not a special retirement account like an IRA or 401(k)), then you owe taxes on your capital gains and on dividends, both of which are likely to be taxed at different rates. Those gains are reported to. you by your broker on a form that is also sent to the IRS, so the taxing authorities are aware of much of what happened (not quite all, some things are not fully reported on those forms). These are offset by any capital losses you have, with distinctions often made for short term versus long term holdings for most filers. These rates for capital gains and dividend taxation have changed several times over the years. I would assume that you have a brokerage account reporting system that’s at least somewhat similar to the US, and that they will tally your data for you so you know your totals for dividends, capital gains (net of losses), etc., but I haven’t ever been a taxpayer outside the US so I’m just guessing on that.

So that doesn’t have much to do with your case, I’m afraid — hopefully someone who understands European taxation rules can chime in. In the US, you almost always only owe taxes where you reside, and you report your income from anywhere in the world on your US taxes. Any taxes due to investment gains or dividends in other countries are taken out by your broker before they get to you, and they can usually be written off against your US taxes.

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