paying capital gains tax on US stocks

[MADDSNIPER]

Hi all, I only setup a online broker account last year so not been trading that long, as i work 9-5 the LSE is shut by the time i get home so in the beginning i was mainly making small trades on the US markets.

Anyway, I understand that a 10% tax is automatically included on dividends from companys trading on the LSE and if you go over a certain limit of profit then you are into the next tax bracket and you have to apply for a form and declare it yourself.Ive been reading conflicting information for dividends on US stocks though, I recieved a letter in the post recently from my online broker and it stated this:

Form 1042-S - Foreign persons U.S. source income subject to withholding tax 2010We are writing to advise you of the information that we have reported to the US Department of Treasury Internal Revenue Service (IRS), with regards to Foreign Persons US Source Income subject to withholding tax, for the year 2010.under the regulations of the IRS, we are obliged to inform you of the information submitted to them on your behalf.

the details that we have submitted are:

income code: 6 - dividends paid by U.S. corporations, general
gross income* - $8.00
Tax Rate- 30%
U.S. Federal Tax withheld* - $2.00
Recipients Code: 1 - individual
withholding agent: halifax share dealing ltd

this information relates to income received by non US nationals on either dividends and/or interest from U.S stock holdings, during the US tax reporting period 1st january 2010 to 31st december 2010, along with the total amount of tax withheld by the US authorities.


So am i reading that right that they have already charged me 30% tax on my dividend gains last US tax year and i do not need to pay anymore tax?

 

[res000]

Does your account reflect this amount, Is the company a foreign or domestic company of the USA.
Here is what I know:

In most cases, dividend income received from domestic corporations is U.S. source income. Dividend income from foreign corporations is usually foreign source income. Exceptions to both of these rules are discussed below.

A substitute dividend payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as a distribution on the transferred security.

Dividend equivalent payments. U.S. source dividends also include all dividend equivalent payments made after September 13, 2010. Dividend equivalent payments include substitute dividends, payments made pursuant to a specified notional principal contract, and all similar payments that, directly or indirectly, are contingent on or determined by reference to, the payment of a dividend from U.S. sources.

First exception. Dividends received from a domestic corporation are not U.S. source income if the corporation elects to take the American Samoa economic development credit.

Second exception. Part of the dividends received from a foreign corporation is U.S. source income if 25% or more of its total gross income for the 3-year period ending with the close of its tax year preceding the declaration of dividends was effectively connected with a trade or business in the United States. If the corporation was formed less than 3 years before the declaration, use its total gross income from the time it was formed. Determine the part that is U.S. source income by multiplying the dividend by the following fraction.
Foreign corporation's gross income connected with a U.S. trade or business for the 3-year period
Dividend Income
The following dividend income is exempt from the 30% tax.

Certain dividends paid by foreign corporations. There is no 30% tax on U.S. source dividends you receive from a foreign corporation. See Second exception under Dividends in chapter 2 for how to figure the amount of excludable dividends.

Certain interest-related dividends. There is no 30% tax on certain interest-related dividends from sources within the United States that you receive from a mutual fund or other regulated investment company. The mutual fund will designate in writing which dividends are interest-related dividends.

Certain short-term capital gain dividends. There may not be any 30% tax on certain short-term capital gain dividends from sources within the United States that you receive from a mutual fund or other regulated investment company. The mutual fund will designate in writing which dividends are short-term capital gain dividends. This tax relief will not apply to you if you are present in the United States for 183 days or more during your tax year.

 

[songcon]

So am i reading that right that they have already charged me 30% tax on my dividend gains last US tax year and i do not need to pay anymore tax?

Yes, that takes care of the US side but don't forget to bring the US dividend with US taxes withholding when you do your UK tax return for 2010. You will get most ( if not all) of the $2 US withholding by getting a credit (reduction) of your UK tax liability.

 

[MADDSNIPER]

yes its a US company i believe, the letter in the post doesn't tell me what transaction they are referring to but from looking at my account i believe its just for the microsoft dividends i received:

10 Sep 2010
Dividend: MICROSOFT CORP COM USD0.00000625
£3.65

which works out at $5.91 according to my converter.

i also received BP (ADR) dividends but they came on the 01 Apr 2011 and were a far bigger amount so i guess ill be seeing a letter about them next year.

i am also wondering what tax i am paying on US stock capital gains, not just the dividends as i keep reading conflicting information, the UK system seems alot more straight forward.

i seen a guy on yahoo answers ask pretty much the same question as i have asked here, one of the answers he got was this:

"See IRS publication 519 and 515.

If you are a resident alien for the tax year, you are taxed the same as a US citizen. (Net gain on 1040.)

If you are a non-resident alien, stocks (and options relating to them) are taxed based on a 183-day rule. If you are physically in the US LESS than 183 days during the year, they are not taxed. If in the US more than that, at 30% on the net gain for the year. (If you fail to supply a valid W-8Ben to the broker, they will withhold 28-30% automatically.)

The home country will tax him.

Real estate is completely different. The buyer (or the title company) will withhold 10% towards the eventual tax bill. The taxpayer is still required to file to ensure that is the correct amount is actually paid. The state tax for the state where the property was located must also be filed. If you have held the property for more than a year, the rate is roughly 15-20%.

Incorporating or being an LLC will not help this, it will make it worse."


well i have never been in the US and i never supplied a "valid W-8Ben " to my broker as i dont even know what that is, so have i been automatically taxed by my broker the 30% on the capital gains from the sales of my US stocks?