US tax filing question

[ExpatCM]

My wife and I live overseas and normally do not file a US tax return because our total taxable income is below the filing threshold. ($25,400 for tax year of 2019).

If I want to sell a mutual fund in a taxable brokerage account which results in a capital loss (therefore would not put us over the threshold for filing), is there any requirement to file a return? The IRS would receive a 1099B and the basis is known by the brokerage firm.

And we also started a small pension this year that’s also not enough when combined with our other taxable income (CD, checking interest) to put us over the filing threshold. Same question. Is there any requirement to file a return simply for having the payer file the required 1099R? We do not withhold any federal tax from the pension as we do not expect to have any liability.


Thank you to the community for any relevant replies.

 

[braumeister]

The IRS would receive a 1099B and the basis is known by the brokerage firm.

I don't think the brokerage reports the basis to the IRS so they will probably assume it was zero (that seems to be their standard approach) and expect tax to be paid on the entire proceeds. AFAIK the only way out of that is to file a return.

 

[cathy63]

From IRS Pub 501 (p 5): https://www.irs.gov/pub/irs-pdf/p501.pdf

Form 1099-B received.
Even if you aren't required to file a return, you should consider filing
if all of the following apply.
• You received a Form 1099-B, Proceeds
From Broker and Barter Exchange Transactions (or substitute statement).
• The amount in box 1d of Form 1099-B (or
substitute statement), when added to your
other gross income, means you have to file
a tax return because of the filing requirement in Table 1 or Table 2 that applies to
you.
• Box 1e of Form 1099-B (or substitute
statement) is blank.
In this case, filing a return may keep you from
getting a notice from the IRS.

 

[Sunset]

If you file, you will get to carry the loss forward to deduct against future income.

Do you know about and are you required to file the Treasury FINCEN report for owning foreign investments ?

https://www.irs.gov/businesses/smal...t-of-foreign-bank-and-financial-accounts-fbar

 

[Alan]

Given that the IRS will assume that all the proceeds from 1099-B will be taxable then I would file a return so I could report the basis and record the capital loss.

 

[SevenUp]

If I want to sell a mutual fund in a taxable brokerage account which results in a capital loss (therefore would not put us over the threshold for filing), is there any requirement to file a return? The IRS would receive a 1099B and the basis is known by the brokerage firm.

Because "the basis is known" (I'm assuming that further means the brokerage firm will report it in box 1e because these are "covered" shares), then the IRS will not assume all the proceeds are taxable. See cathy63's post.

Thus you do not have a filing requirement.

You might consider filing to document the loss for future returns as Sunset suggested.

 

[pb4uski]

My wife and I live overseas and normally do not file a US tax return because our total taxable income is below the filing threshold. ($25,400 for tax year of 2019).

If I want to sell a mutual fund in a taxable brokerage account which results in a capital loss (therefore would not put us over the threshold for filing), is there any requirement to file a return? The IRS would receive a 1099B and the basis is known by the brokerage firm.

And we also started a small pension this year that’s also not enough when combined with our other taxable income (CD, checking interest) to put us over the filing threshold. Same question. Is there any requirement to file a return simply for having the payer file the required 1099R? We do not withhold any federal tax from the pension as we do not expect to have any liability.


Thank you to the community for any relevant replies.

My view is that if you are under the threshold then you are under the threshold and there is no need to file. Also, it would seem likely that the brokerage will report basis to the IRS... you can probably get an idea by looking up the basis for the positions that you plan to sell on your broker's website or call them.

If after all is done you don't need to file I would not file but put a memo explaining that you didn't need to file in your tax papers. Then if the IRS later asks why you didn't file you can just send them a letter explaining why and that will probably be the end of it.