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Financial News

Jul 2010 Financial News

US investors face heavy taxes

Jul 19, 2010

With the recent implementation of the Hiring Incentives to Restore Employment Act of 2010, US permanent residents or citizens in Jamaica who hold investment instruments in excess of US$50,000 may be subject to significant US tax and penalties by next year.

Duane Barrett, director, personal financial planning practise at chartered accounting firm, Barrett and Company, told Sunday Finance that as a result of this updated law, now more than ever these individuals must "take stock" of their financial standing. Barrett also operates B&B University College, which provides training in professional designations such as the Certified Financial Planner (CFP).

US citizens and permanent residents who hold assets in any financial institution outside the US, including local financial institutions, must now report this to the Internal Revenue Service (IRS)






"People need to start making the plans now to assess where they want to go and what they have been doing," Barrett said.

The new tax bill, signed into law in June this year is intended to offset the cost to the US government of providing a payroll tax credit for employers who hire new employees after February 3, 2010. The provision is to encourage employment of the many persons made jobless during the financial crisis in the US. To offset the costs of the Act, there will be a 30-percent withholding tax on income from US financial assets held by foreign banks which have not disclosed their US account holders' balances, receipts, and withdrawals. Additionally, individuals who do not disclose these assets will be subject to a 40 per cent penalty. The Act also closes a tax loophole that investors had used to avoid paying any taxes on dividends by converting them into dividend equivalents.

This means that US citizens and permanent residents who hold assets in any financial institution outside the US, including local financial institutions, must now report this to the Internal Revenue Service (IRS). The reporting requirement is as of tax year 2010.

Barrett said that persons who previously had not been reporting these assets have two options:

I. Report the assets using an amended tax return, including earnings for previous years -- in which case some penalties will apply; or

II. Do nothing until the IRS decides to do an audit of the assets.

Barrett does not recommend the latter option.

"Once you file that declaration they are going to say what is the income in previous years for those assets," Barrett said.

In this case the individual will need to file a retroactive revenue and tax return. Barrett said persons who fall within the category will now need to begin to think about future financial planning.

"One would have to consider whether or not it is safer or more efficient to have your assets held in the United States," Barrett said.

He added that persons locally can use the assistance of an independent financial planner to sort through these issues and determine whether they want to approach the IRS with a structured plan for dealing with the past and future declarations.

"These persons will need to start assessing their financial exposure to this new tax bill and planning for its implications," he said.

However, given that this disclosure requirement was not previously enforced for foreign held assets, then local institutions may not have been preparing such reports for the IRS, Barrett said.

"However if somebody is doing everything by the book, this should not affect them because they should have been reporting the income over the years," he said.


Source:
Alicia Roache
Sunday Finance reporter roachea@jamaicaobserver.com
Jamaica Observer
Sunday July 18, 2010

http://www.jamaicaobserver.com/business/US-investors-face-heavy-taxes_7805911