I am an American citizen. I live and work in Tokyo, Japan, where I have Permanent Resident status. I have already filed my taxes
for Japan for 2010. I have yet to file my taxes for the USA for 2010.
Here is my tax situation: I had capital gains from the purchase and sale of gold and silver bullion at a precious metals corporation in the USA. I have already paid Japanese national taxes on those capital gains. An important point is that I made the capital gains profit in the USA, not Japan.
Question one: Can I use the USA tax
Form 1116 for a foreign tax credit
for the taxes I paid Japan? Or do I have to use Schedule A for itemized deductions
where I declare the tax paid to Japan as an income tax
paid to a foreign country? Or is there another possibility? Obviously, a tax credit (Form 1116) would amount to a greater reduction in my USA taxes than an itemized deduction
for foreign taxes (Schedule A) from my income.
Question two: How can I take a foreign tax credit on my Japanese tax return or future Japanese tax return for the US taxes I will pay on the same capital gains I have already paid taxes on to the Japanese government? I was taxed 17% on the precious metals by Japan and I will apparently be taxed another 28% by the USA. This is double taxation
For the year 2010, my earned income as salary in Japan was very low compared to my much higher unearned capital gains income in the USA. Is it possible that through the USA/Japan Tax Treaty, I could get some sort of credit for my tax payment to the USA that would reduce my tax to Japan? My earned income as salary in Japan was about 5% of my total income as about 95% of my income was from the capital gains on the sale of precious metals in the USA.
Question three: I also presently own gold bullion in Japan. In the future, if I have capital gains on that gold when I sell it in Japan, I am expected to pay taxes on the profit to Japan. Can I use the American tax Form 1116 for a tax credit for the tax I will pay Japan for the profits on the gold bullion?
Question four: As stated, I presently own gold bullion in Japan. If I left Japan and gave up my Permanent Resident status in Japan and then later sold my gold in Japan at a profit, would I owe capital gains tax on the profit from the gold to the national government of Japan?