Does using a US broker mean your income is US sourced?

[Jayford]

This is a question for Yanks trading abroad. I understand that as a Yank, I pay US taxes no matter where I live, but it is an important distinction as to whether the income is US sourced or foreign sourced. So I am not sure what applies. The trading would be done abroad (the actual "work"), but I'd be using US brokers and exchanges.

In case anyone is curious as to why I care. There is one place on the planet where Americans can structure their income to pay lower rates, and still keep their US citizenship. The US Virgin Islands. This is because you pay the VI and not the IRS. Generally, income tax rates are the same, but not with passive income. Passive income, if Virgin Island sourced, is only taxed at 10 percent. There are actually several hedge funds located there for tax reasons.

Jay

 

[sim03]

Neither the location of your broker nor the location of the exchanges you trade on matters for US income tax purposes. So, the answer to your title question is "no."

It's kind of a moot point, though, because the distinction you refer to, between US- and foreign-sourced income, only matters for earned income, i.e., in simplified terms, compensation for services provided. Trading income is not earned income, unless, e.g., your job is a trader for a corporate entity.

Read IRS Pub. 54, an essential resource.