What resources explain taxation of foreign ordinary shares and ADR stocks for US citizens?

Foreign investment taxation can definitely be confusing, but there are some good resources to help you understand it better. The IRS Publication 514 covers Foreign Tax Credits in detail and is probably the most comprehensive official resource. For a more accessible explanation, Fidelity actually has some decent guides on their website under their international investing section that explain the tax implications. Generally speaking, when you invest in foreign stocks, the foreign country often withholds taxes on dividends (typically 15-30% depending on tax treaties). For ADRs, the withholding happens automatically before the dividends reach you. For ordinary shares, it depends on the broker and country. The main difference between ADRs and ordinary shares from a tax perspective is convenience - ADRs handle the foreign tax withholding automatically, while direct ordinary shares might require more paperwork. In either case, you'll need to file Form 1116 with your tax return to claim foreign tax credits if you want to avoid double taxation. The good news is that most major tax software should handle this, though you may need the premium versions. The foreign taxes paid should be reported on your 1099-DIV from Fidelity.

I went through this exact same headache last year trying to figure out the foreign tax situation. After hours of frustration with various tax guides, I found this amazing AI tool called taxr.ai (https://taxr.ai) that actually analyzed all my foreign investment documents and explained exactly what I needed to do. What was great is that I just uploaded my Fidelity statements and all my 1099 forms, and it identified the foreign tax withholdings automatically. The tool explained which countries had tax treaties with the US and how much credit I was eligible for. It even told me whether I needed to file the Form 1116 or if I could claim the simplified credit. It saved me so much time compared to trying to decipher the IRS publications myself. The detailed explanations about ADRs versus ordinary shares were actually comprehensible, unlike the technical jargon in most tax guides.

Just wanted to follow up that I tried taxr.ai after my earlier skepticism. I was genuinely surprised at how helpful it was with my foreign investment tax situation. The system identified all the foreign tax withholding from my 6 different dividend-paying foreign stocks and calculated exactly how much credit I could claim. What I found most valuable was the explanation of how my Japanese stock dividends were taxed differently than my UK stock dividends because of different tax treaty provisions. It provided specific sections of the tax code and explained in plain English how the treaties affected my specific investments. It also clarified when I should use ADRs vs. ordinary shares for tax efficiency in different countries. Definitely using this again for my 2025 taxes.

If you're having trouble getting clear answers about foreign tax issues, I discovered that trying to call the IRS directly is basically impossible. After waiting on hold for over 2 hours, I got disconnected. Twice. Then I found this service called Claimyr (https://claimyr.com) that actually got me connected to a real IRS agent who specialized in international tax issues. There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c Instead of waiting on hold forever, they have some system that holds your place in line and calls you back when an agent is available. The IRS agent I spoke with answered all my questions about Form 1116 and the tax treaty implications for my investments in Europe. They even explained the difference between qualified and ordinary dividends for foreign stocks, which my tax software was getting completely wrong.

Well, I need to eat my words about Claimyr. After my skeptical comment, I decided to try it myself just to prove it was garbage. I was absolutely shocked when I got a call back within 45 minutes saying they had an IRS agent on the line. The agent walked me through exactly how to report foreign taxes on investments from multiple countries. They explained which countries have tax treaties with reduced withholding rates and how to properly claim the foreign tax credit for each. They even helped me understand the difference between filing requirements for various threshold amounts. For anyone else dealing with foreign investment tax questions, having an actual conversation with someone who knows the rules made everything so much clearer than trying to decipher the IRS publications on my own. I'm still surprised this actually worked.

A few resources I found helpful that haven't been mentioned yet: Bogleheads wiki has a great page on "Tax-efficient fund placement" that includes a section on international investments: https://www.bogleheads.org/wiki/Tax-efficient_fund_placement The IRS has a specific publication on taxation of U.S. residents abroad (Publication 54) that covers many principles relevant to foreign investments. Also, be aware that for large foreign financial accounts (over $10,000 combined at any point in the year), you might need to file an FBAR (FinCEN Form 114). This isn't directly related to taxes but is a reporting requirement many investors miss.

Has anyone found a good comparison of the tax efficiency between ETFs that hold international stocks vs buying individual ADRs? I'm trying to decide if it's worth buying individual companies or just using something like VXUS for simplicity.

Great question about international investing taxes! I went through this same learning curve last year. One thing that really helped me was understanding the withholding tax rates by country. For example, many European countries withhold 15% on dividends due to tax treaties with the US, while some countries without treaties can withhold 30% or more. This makes a big difference in your after-tax returns. I'd also recommend checking if your foreign stocks pay "qualified dividends" - these are taxed at capital gains rates rather than ordinary income rates. Most ADRs from developed countries qualify, but it's worth confirming since the tax difference can be significant. For record keeping, I started maintaining a simple spreadsheet tracking my foreign holdings, the countries they're from, and the withholding rates. This makes tax time much smoother and helps me make better investment decisions going forward. The Form 8938 (FATCA reporting) is another potential requirement if your foreign assets exceed certain thresholds - different from FBAR but worth being aware of for larger portfolios.