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Posted by TAP on February 13, 2007, 2:27 am
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I'm a US permanent resident/UK citizen. I have a 10% share
in a family business in the UK which was restructured last
year to pay dividends. I receive 5000UKP/year (approx.
$9000) post-tax already paid at 10% which is
555.55UKP/year(approx. $1000). I've been trying to work out
if/how I declare this on my US tax returns using turbo tax
but it's pretty confusing.
Seemed to come out that I owed over $1000 each on my federal
and ny state taxes. Does that sound right? (Our US gross US
income on a married joint return is around $80-90k before
the dividendincome is added in.)
Does the UK inland revenue report this income to the IRS?
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Posted by Shyster1040 on February 13, 2007, 11:26 pm
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I assume that when you state the amount you receive
"post-tax" what you mean is the gross amount of the
dividend, less applicable UK withholding taxes imposed on
the payment of the dividend income to you (as opposed to UK
taxes imposed on the company in respect of the company's own
income)?
If so, then, assuming that the corporation is not a
controlled foreign corporation (i.e., generally a
corporation of which more than 50% of the company is not
owned by persons, each of whom owns 10% or more, and each of
whom is a US citizen or resident): 1) As a US resident,
dividends received from foreign corporations are included in
your gross income. They would be reported on your Sch. B;
2) If the UK tax was withheld from the dividend payment as
income payable to you (rather than tax imposed on the
company in respect of the company's income), then it should
qualify for the foreign tax credit;
3) Alternatively, if it gives you a better tax result, the
UK tax can be deducted; however, the foreign tax credit
usually gives better results.
Lastly, you need to make sure that you're filing all of the
other associated forms that cover US persons who own
significant interests in foreign corporations. For example,
you should determine whether or not you need to file Form
5471. You also need to determine if the company is treated
as a Passive Foreign Investment Company ("PFIC"), in which
case you will need to file Form 8621.
If you haven't filed these forms before you had better make
absolutely sure that those forms weren't required for any
prior year. The penalties for failure to file can be quite
severe.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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