While US tax filing season seems far away, the time frame for reviewing your finances with a view toward tax planning for this year is less than two months away. First, however, we address some particularly onerous tax news out of Washington that has a direct bearing on any US citizen, or dual-national living anywhere outside of the United States.

A new offshore initiative to tighten up reporting on US persons with foreign accounts, The Foreign Account Tax Compliance Act, was unveiled October 27, 2009, by House Ways and Means Committee chairman Charles Rangel, and his colleagues on the committee.

It is another comprehensive proposal to clamp down on tax evasion and improve taxpayer compliance by giving the Internal Revenue Service new administrative tools to detect, deter and discourage offshore tax abuses. For the full text of the release go to http://waysandmeans.house.gov/news.asp*?>*formmode=release&id=958

In summary, the Act would force foreign financial institutions, foreign trusts, and foreign corporations to provide information about their US accountholders, grantors, and owners, respectively.

Important measures in the proposal include:

• The bill requires 30 percent withholding on payments to foreign financial institutions and other entities unless they acknowledge the accounts' existence to the IRS and disclose relevant information including account ownership, balances and amounts moving in and out of the accounts.

• Individuals and entities would be required to report offshore accounts with values of $50,000 or more on their tax returns.

• The statute of limitations will be extended to six years when offshore accounts are unreported or misreported.

• Advisers who help to set up offshore accounts would be required to disclose their activities or pay a penalty.

• The proposal would also require electronic filing of information reports about withholding on transfers to foreign accounts to enable the IRS to better match reports to tax returns.

• The bill strengthens rules and penalties with regard to foreign trusts, including rules to determine whether distributions from foreign trusts are going to US beneficiaries and reporting requirements on US transfers to foreign trusts.

• The legislation clarifies that US dividend payments received by foreign persons are treated as dividends even when couched as another type of distribution in an effort to avoid US taxes.

"This bill offers foreign banks a simple choice - if you wish to access our capital markets, you have to report on US account holders," said Chairman Charles Rangel. "I am confident that most banks will do the right thing and help to make bank secrecy practices a thing of the past."

A full analysis of this bill with relevant commentary for Bermuda by me will be published at a later date. With that overwhelming missive at the forefront of news for the next tax year, if you are a US citizen, (or dual-national with the US) now is the time to run through a tax preparation checklist to be sure that your return will be as accurate as possible and to ascertain you are tracking all the deductions and expenses for which you are entitled.

This is a general overview of the tax reporting and filing process. All US (persons) citizens (green card holders), or resident aliens must report and pay tax on their worldwide income above certain thresholds, even if they live abroad. The category of US persons is broad and may include categories other than natural persons.

The United States Tax Code and Regulations is extraordinarily complicated institution - yes, that is what it is. It encompasses thousands of pages; it generates thousands of tax court filings; it is informed by the United States Internal Revenue Service and is one of the primary drivers of the United States economy.

The tax reporting process is a serious business for thousands of suppliers, tax planners and preparers, tax attorneys, and electronic tax filing vendors. The tax forms used by US citizens can somewhat resemble a recipe list, line by line.

They are, however, deceiving in that every line for the US Individual Tax Form 1040, for instance, is backed by millions of verbiages of interpretation, tax and letter rulings, law and code. Tax law is fluid, and seems at times, to be in constant change, given that the collection of taxes (and the awarding of tax credits) is a major mechanism to control and augment the government coffers.

Taxes are paid by millions of people, regrettably still more little people than big fish - in the words of Leona Helmsley, real estate magnate, queen of mean, and server of prison time for tax evasion. Leona did not feel that she should pay taxes; how else was she going to acquire a fortune of $5 billion, most of which was bequeathed to her dogs?

Income categories on the US Tax Form 1040 broadly can include: salaries, bonuses, commissions, self-employment, consulting and director income, interest and dividends, your employer's pension match, rental income, distributions from certain types of trusts i.e. foreign non-grantor and trusts settled by US citizens, annuity and pension distributions, non-qualified pensions, social security and foreign old age pensions.

Much less easy to define are non-cash income items such as payments and allowances for housing, travel, vehicles, employee medical insurance benefits, childcare and kiddy income if your minor child is the recipient of a grandmother largesse.

Tip: if your reportable income is already at 2008 level, consider requesting a delayed payment to 2010 for bonuses, commissions, allowances etc. Given recessionary rectitude, you may generate less income anyway in the New Year. Investments, such as intangibles, real property and others, can include the tax treatment of appreciation and depreciation on acquisition and sale, otherwise known as short and long-term capital gains and losses.

Tip: if you have had losses for the 2008 year, and gains for this year, consider selling the gains to offset against prior year loss carry-forwards. Sometimes the reason to sell is not tax-motivated, you simply want to lock in long-term profits. Remember that short-term gains - less than one year - are taxed at ordinary income tax rates. Adjustments to Income are allowed to offset against income reported.

Individual Retirement Arrangements (IRAs) are deducted to a certain threshold assuming you have US earned income, this is a savings incentive. Alimony is deducted if you are paying it, and added to your reportable income if you are receiving it.

Bermuda divorce decrees do not generally differentiate between child support and alimony, leaving this category subject to interpretation. Education-Related Adjustments are incentives to increase learning.

Tip: There are other income adjustments available, a review of the 1040 form and instructions will provide clarity. If you prepare your own tax returns, stay current with US tax law changes. There have been many in the last two years, and not always to the Taxpayer's benefit. Additionally, there are different rules and compliance reporting on foreign accounts that apply to US persons living abroad. The most common mistake made by those working offshore - is the assumption that because your compensation is below the foreign earned income exclusion threshold, there is no need to file a return.

Tip: This is not correct and can cause you problems if you are audited. Stay tuned for the second part of tax series on November 21, 2009: Discussion on deductions, credits, and Tax changes for 2009.

The third part of the Tax series on December 10, 2009, will focus on Non-resident Aliens (NRA's) generating US source income through ownership of foreign investments and property, doing business in the United States, dying with US assets, conveying US assets and other items that those who have never learned to love a US tax return, now must learn to comply with.

This article is for general information only and is not to be taken, under any circumstances, as individual personal financial advice. You will need to consult with your US tax advisor as advice varies with individual circumstances. IRS Circular 230 Notice: Pursuant to U.S. Treasury Department Regulations, I am required to advise you that any tax advice in this Article is not intended to be used for the purpose of (i) avoiding penalties imposed under the United States Internal Revenue Code, or (ii) promoting, marketing, or recommending to another person any tax related matter.

Martha Harris Myron, CPA, CFP(US) TEP(UK) JP is a Certified Financial Planner Practitioner and a partner at Patterson Partners Ltd. She specialises in fee-only cross-border planning: tax, retirement, estate, and strategic services for Bermuda residents with cross-border and multi-national connections, internationally mobile people and US citizens living abroad. For more information, contact martha.myron@gmail.com">martha.myron@gmail.com or phone 735-4720.