Investing in the U.S.
Banking Basics Getting Started Living Abroad

Investing in the U.S.

Pawan

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Making sound investments can stand you in good stead in the future. Also, investing can be an excellent way to augment your income and lay the foundation for passive returns in the future. If you are an H1B or L1 visa holder who is interested in investing in the U.S., then you have come to the right place.

Here's everything that you need to know about investing in the U.S.

Can H1B/L1 Visa holders invest in the U.S. stock market?

Yes. Since investing in the stock market generates a passive income and does not violate the terms of the visa, a valid visa holder can participate in stock trading and invest in the U.S. stock market to gain returns on their salary - like any other retail investor.

What is the requirement for H1B/L1 holders to invest in stocks?

Before you begin investment planning, make sure you have the following documents in order:

  • A Social Security Number (SSN)
  • A copy of your passport
  • A copy of the H1B Visa Stamp in your passport
  • A copy of the H1B approval notice
  • A copy of the I-94 Departure or Arrival card
  • A residential proof for a U.S. based address (such as rental agreement, utility bill, etc.)
  • Details regarding your employment (optional)

Source

Additionally, certain brokers impose age restrictions that require the investor to be a legal adult (at least 18 years of age) to start investing. And as applicable to every U.S. citizen, you will be governed by the fact that you cannot trade on someone else's behalf, and the trade should only originate from you or your account.

How to invest in U.S. Markets?

Once you have all the above documents, you can sign-up online on any online stockbroker platform such as Interactive Brokers, Scottrade, Robinhood, Ameritrade, ETrade, TradeKing, etc.

Once registration is complete, you can do thorough financial planning and analysis as you kickstart your journey of buying and selling stocks.

Day Trading or Delivery Based Trades - which one is better for H1B/L1 visa holders?

While investing in the U.S. through stock trading, you have two options:

  • Day trading
  • Deliver based trades

As the name indicates, Day Trading involves the buying and selling of stock on the same day. In contrast, Deliver Based Trades require the investor to purchase and hold the stock for a duration that lasts significantly longer than a single day.

Since H1B/L1 visa holders have full-time jobs, they may not have the time or the resources to carry out informed financial planning and analysis. Typically, day trading is done by full-time stock traders and is highly time and attention-intensive, which may contradict and even violate the terms of the original employment against which the individual has received their H1B/L1 visa.

And so, even if there is no rule prescribing this segregation, H1B/L1 visa holders take part in delivery-based trades as it is more feasible.

What is the tax liability on H1B/L1 holders for stock trading?

Even though the income generated through investments is passive, it is income nevertheless. As a result, you need to pay taxes on all your stock market earnings.

Since the IRS recognizes these earnings as income, various taxes are levied. These taxes are decided depending on the taxable component, the nature of the investment, and the holding period.

Some of the different taxes include:

  • Tax on dividends
  • Tax on capital gains
  • Tax on interest
  • Tax losses and wash sales

It is best to involve a tax consultant to devise your tax liability and file the return on such gains without impacting your visa status.

Can you give up your full-time job if you wish to pursue trading full-time?

So, you have done the homework and carried out all the financial planning and analysis. You have enough corpus and make enough passive income to sustain yourself. Or, you just got lucky and ended up multiplying your investments by many folds.

Is it time to turn in that resignation and start enjoying the fruits of your labor?

Well, not yet.

While your investment planning may have raked in considerable profits and the USCIS may allow trading, you can only do it while maintaining the legal status of your H1B/L1 visa. Once you tender your resignation, you no longer work for the company that sponsored you, which effectively violates your visa and makes you ineligible for investing.

What are some non-stock investment options in the U.S?

In addition to trading and investing in the U.S. stock market, you can also consider parking your money in some non-stock options like:

  • Cryptocurrency
  • 401 and 401k matching
  • Real estate
  • Startups (through crowdfunding)
  • Certificates of Deposit

Final thoughts

If you wish to get solid returns on your salary, investing is one of the best options available. However, practice well-rounded financial planning and analysis while selecting the form of investment and the instrument. And uphold the terms and conditions attached to your visa so that you can continue drawing these benefits.