U.S. TAX GUIDE IN FRANCE

How do you report capital gains on stocks and shares on a US tax return?

For US citizens or green card holders in France, profits from stocks and shares in any company must be reported on your US tax return. The tax rate depends on how long you’ve held the investment:

  • Short-term investments (less than a year): Taxed as ordinary income, which ranges from 10% to 37%.
  • Long-term investments (more than a year): Taxed at 0%, 15%, or 20% depending on your taxable income.

Can French taxes on these gains be deducted from US taxes?

Yes, if you’ve paid French taxes on capital gains, you can use these as a credit against your US tax liability. This helps avoid double taxation, thanks to the foreign tax credit mechanism.

What if you invest in tax-advantaged French accounts?

The US does not recognize foreign tax-advantaged statuses. This means gains from these accounts are fully taxable in the US, potentially leading to unexpected tax liabilities.

Why are foreign mutual funds or ETFs problematic for US citizens?

Investing in foreign mutual funds or ETFs can trigger Passive Foreign Investment Company (PFIC) rules, leading to punitive tax rates and complex reporting. Gains may be heavily taxed, making it crucial to understand these implications before investing.

How are company shares received as compensation treated?

When you exercise stock options, it’s a taxable event in the US. The value at the exercise sets the cost basis. Future profits from selling these shares are subject to capital gains tax, which can be offset by any French taxes paid.

What should you do if considering selling shares?

Consult with a tax professional before selling shares or exercising stock options. Proper planning helps understand tax implications and manage financial expectations, avoiding surprises at tax time. Preparing estimated tax calculations is also advisable.