How does taxation of foreign investments work?

In California, foreign investments are subject to taxation just like domestic investments. Meaning, any income or profit made from foreign investments must be reported to the Internal Revenue Service (IRS). International Tax Law establishes the guidelines for how taxes will be calculated for investments made overseas. Generally, if an investor makes money from foreign investments, he or she must pay taxes on the income, including dividends, interest, and capital gains. This is true whether the investment is made in public securities, private stocks, or funds. The US tax system requires that any foreign investments made in the US be reported and taxed at the same rate as domestic investments. For example, if an investor earns a capital gain on their foreign investment, they must report it on their US tax return, and the income is taxed according to their overall tax bracket. There is one exception, however. If an investor is a foreign resident and has investments in the US, they are not required to report these investments to the IRS. This is known as the Foreign Tax Credit, and it allows the investor to avoid double taxation on the same income. Ultimately, whether domestic or foreign, investments are subject to taxation in the US, and all investors should be aware of the relevant tax laws.

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