US tax return questions

I am an American living in London (married to a British citizen). I have a couple of questions about filing US tax returns:

1. Last year I opened an account with a UK broker. When I sold my investments, some of the proceedings were withheld at source as part of the broker's 1099 reporting.How can I get a refund for this in my tax return? Should I use form 1040 or 1040A?

2. I am considering opening an ISA. How would I include it in my US tax return? In general, do you think it is a good idea for a US citizen to put money in an ISA?

Thanks.

1. If this is US withholding then the withholding should not have occured unless you failed to file a W-9.  Assuming it did happen then the proceeds go on Schedule D and the withholding on page 2 of the 1040.  Since this was in the UK you'll also declare the gain on your UK tax return.  You should already have reported the securities account on form TD F 90-22.1.

2. In ISA is available to you as a wrapper assuming you are ordinarily resident in the UK.  You'd report this on the TD F 90-22.1 and any income or gains or PFIC income arising within the ISA wuld be reportable on your annual US tax returns.
You could invest offshore and avoid UK tax without using an ISA wrapper if the UK tax-free nature of the ISA is your main driver for wanting one.

Hi guya, thanks for your replies. Yes, the problem was due to the fact that I failed to file W-9 before I started trading. Unfortunately I did not file a UK tax return for last year, I didn't realise I had to. Do you know what the consequences of this can be?

You have until 31 January 2008 to file the return for the year ended 5 April 2007. 

I agree with Guya 100%. 

I would further recommend that if you owe money on your UK return, you should pay the tax 31 Dec 07 rather than 31 Jan 08 so that you can claim the tax paid during calendar year 2007 on your US 2007 tax return.  This assumes you are using the "paid" basis for Foreign Tax Credits.

Another recommendation:  Do not invest in Unit Trusts and Investment Trusts, as these are subject to PFIC taxation rules (higher US taxes than investing directly in shares like BT, GE, IBM, etc.).  If you wish to know more about PFIC taxation, read about it here:  http://en.wikipedia.org/wiki/Passive_foreign_investment_company

Cheers,

Lizzit

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