International Taxation For Americans

Oct. 6, 2010

"Kathleen, if I play the stock market while residing in Panama, would I have to pay U.S. income tax on winnings?"

-- Karyn T., Panama

Resident international tax expert, attorney Chris Rusch, replies:

This is a complex issue. The bottom line is this: If you are a "professional" trader as defined by the IRS, you can operate your business through an offshore corporation, draw a salary of up to US$91,500, and retain the rest of your profits in the company. A clear (indisputable) example of a professional is someone who spends eight hours per day, five days per week, trading, researching, and working at his (or her) craft.

Conversely, if you invest in the market as a hobby (an "investor" in IRS parlance), spending just a few hours each week or month, you are not a professional. As a casual investor living abroad, your trades are reported and taxed on Schedule D of your U.S. tax return, just as they would be if you were living in the United States.

The above example of the professional trader is a simplified one. Most people who hope to be classified as professional investors fall short of this clear-cut description. Careful consideration, planning, and documenting of your time is required to determine if you can be classified as a professional.

Editor's Note: International tax and business attorney Chris Rusch will be a key speaker at our upcoming Emergency Offshore Summit, planned for Dec. 2-3 in Panama City. As of this writing, places remain available.

Read full details of the timely and important program we're planning here. Then contact Conference Director Sofia Hogan to reserve your seat in the room by e-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it or by phone, toll-free from North America, 1-888-627-8834.

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