I made money through American stocks. How much capital gains tax should I pay?
The sum of profits earned through overseas stocks, that is, 22% of the total amount excluding transaction fees from market profit, is the positive income tax amount. However, there is a basic deduction limit for overseas stocks, just like domestic stocks. This means that profits up to 2.5 million won are not taxed.
For example, let’s say you earned 10 million won through overseas stocks. The capital gains tax amount for this becomes KRW 1.65 million, which is 22% of the amount of KRW 7.5 million after subtracting the basic deduction limit of KRW 2.5 million from KRW 10 million.
What is important is the total of ‘realized profits’
Let’s think a little more about taxable amounts. What is important in determining the taxable amount is ‘realized profit’. Literally, it must have already been 'realized', and the total of realized profits and losses must be 'profit', not loss. Additionally, as mentioned above, the amount must exceed the basic deduction income of 2.5 million won.
Let's look at a simple example.
In the above example, the total realized profit is 3.5 million won. D's assessed profit and loss is 20 million won, but it is not related to taxes because it is held without any realized profits. Therefore, the amount subject to income deduction is 1 million won, excluding the deduction amount of 2.5 million won, and the tax amount will be 22%, or 220,000 won.
Is there any way to reduce taxes (Tax saving tip)
Those who are astute may have already guessed this, but there is a hidden tip in ‘realized profits’.
Let's look at the example below.
As the end of the year approached, I checked the taxable amount and realized that the realized profit from Item A was 5 million won, so even considering the 2.5 million won deduction, taxes are expected to be incurred on the remaining 2.5 million won. In that case, by intentionally selling item B, which has a valuation loss, the taxable amount can be reduced to 0 won.
It doesn’t matter even if the purpose was to invest in B for the long term. If you sell B and then buy it again, the long-term profit excluding the sales commission is the same**. The average unit price or profit and loss shown on the account may vary, but that is all. There are surprisingly many people who are obsessed with the trading records of long-held stocks, whether losses or profits, but there is no need to do so. Let's just focus on money.
By the same principle, if you have a stock that is recording a lot of profit, it is a good idea to make the most of lossing stock and basic deductions, even if you had no plans to sell it. Even if you have no intention of selling it right now, you will sell it someday and taxes will be levied on it. If you realize a profit equal to the sum of realized losses and deductions, you can reduce taxes on profits that will be generated someday.
Fees must be considered
If the assessed profit or loss is small compared to the amount held, or if you try to unreasonably offset a large amount of profit and loss in the first place, the fee may be greater than the tax.
Let's look at the example below.
Assuming there is a remaining deduction balance, if you sell and repurchase for an amount of 200 million won, you can save taxes on 2.5 million won that will be incurred in the future, but the commission that accrues immediately is a whopping 1 million won.
Therefore, when offsetting profits and losses, stocks with large assessed profits and losses compared to the holding amount should be prioritized to minimize damage from commissions.
When should I finish it
Since the transfer profit is calculated as the sum of the profits generated during the year, it is based on payments made by December 31. In the case of U.S. stocks, settlement is made 3 business days after purchase or sale, so for this year, accounts must be finalized by December 22nd.