In the past, bleak November was dreaded by me every year for more than 30 years. Short dark gloomy days, all the leaves gone from the trees, the landscape bare but for frost and icy roads, Canadian geese flying overhead at dusk, honking in glee as they headed south while I stood forlornly watching. During many of those Novembers, my practice was also facing the busiest month of all for tax and financial planning, as we worked with clients to estimate their tax liabilities and help them implement strategies to minimise tax burdens.

Then four years ago, I returned home with my husband, wonderful man, he who sacrificed open spaces, long highways, endless forests, ultimate shopping malls, Barnes & Noble, and big driving machines for the sparkling seas, tiny roads, tiny cars, no malls, no Barnes & Noble, but the sunny skies of Bermuda. My debt of gratitude to him will be endless for today I am no longer perpetually cold, nor do I own the responsibility of a stressful business, but instead enjoy helping clients achieve financial piece of mind in the absolute best of both worlds.

Having said all that, it may be tax and financial planning time again for US citizens working here on contract; US citizens married to Bermudians; US resident aliens; US long-term Bermuda residents; US green card holders, and others who hold two passports, one of which is a US passport. You may not know that the United States taxes US citizens and those deemed US residents on world-wide income, and that if they meet the minimum threshold requirements they are required to file a tax return annually.

Please note that this is an overview of tax planning for the tax year 2002. The information is general in nature and is not to be interpreted as specific to your situation. You should seek the advice of a tax professional who is experienced in handling international tax situations. Several of the Big Four accounting firms have tax department, Ernst & Young has a recent addition, Christopher Larkin, who is a United States expatriate tax specialist expert.

@EDITRULE:

Foreign Earned Income Exclusion - Form 2555. I have said it before and will say it again, every US citizen or other deemed US resident working abroad may be eligible for this exclusion ( up to $80,000 for each taxpayer in tax year 2002), but you have to elect to take the exclusion by filing your tax return! People say to me every year, "I don't have to file because I don't owe anything as I earn below the exclusion limit." Excuse me, but if you neglected to file a tax return, Internal Revenue Service will treat all of your earned income - as if you had no exclusion - in other words, fully taxable.

Tax Rate Reductions. The largest tax reduction in 20 years was signed into law in tax year 2001. All tax brackets will be gradually reduced over the next few years and a new ten percent tax bracket was introduced. (See Chart).

@EDITRULE:

IRA distributions. Many older US taxpayers have significant IRA accounts. Withdrawals are not subject to the early distribution penalty once you attain 59.5 years of age. Take advantage of the low tax threshold caused by the exclusion and consider withdrawing some of your IRA each year. Careful tax planning may minimise tax, particularly since IRAs are taxed as ordinary income.

@EDITRULE:

IRA Contribution limits are higher. Those who elect the foreign earned income exclusion and have taxable earned income remaining (you earn $100,000, say - $80,000 is excluded, and $20,000 is subject to tax) will be in the lowest tax brackets. With careful planning and timing on trips abroad, you may have enough additional US earned income - that cannot be excluded - to continue to contribute to an IRA - $3,000 in 2002. If you are age 50 or over, you may contribute a 'catch-up' additional $500 (also indexed for the next five years or so).

Section 529 Savings Plans for College. The popularity of these education savings plans continues to grow, as the money for the child's education grows tax-free. Withdrawals are tax-free also if used to pay for college costs. Now grandparents or parents wishing to reduce their US taxable estate can contribute $55,000 each ($110,000) every five years to a tuition-savings plan. For further information, go to www.savingforcollege.com

@EDITRULE:

Mutual Funds. Are your mutual funds tax efficient? Generally, they are not, however, new SEC rules effective in February of this year mandate that US mutual fund reports include before and after-tax returns. If you are facing paying for substantial dividends and capital gains on devalued mutual funds, thus adding insult to injury, now is the time to revisit your portfolio allocations for tax efficiency. You might also consider investing in wildly popular among the retirement set, municipal bonds, and other specifically labelled tax-managed products such as several offered by Eaton Vance Fund Managers. www.ev.com

@EDITRULE:

For other tax self-help you can go to www.irshelp.com.

@EDITRULE:

Comments are made to me every year around this time as to the relevance of writing about US tax implications. Readers, there are more than 4 million Americans living abroad. Many people I have met in Bermuda have two passports, often one of them a US passport. Accountability to the US government has been raised to an all-time high. If you think that you have US tax issues that need to be resolved, I urge you to consult now with a tax specialist.

@EDITRULE:

Martha Harris Myron CPA CFP(tm) is a Bermudian, a Certified Financial Planner(tm)(US license) practitioner and VP and Manager, Personal Financial Services, Bank of Bermuda. She holds a NASD Series 7 license, is a former US tax practitioner, and is the winner 2001-The Bermudian Magazine - Best of Bermuda Gold Award for Investment Advice. Confidential Email can be directed to marthamyronnorthrock.bm

lThe article expresses the opinion of the author alone, and not necessarily that of Bank of Bermuda.

Under no circumstances is this advice to be taken as a recommendation to buy or sell investment products or as a promotion for financial plans. The Editor of the Royal Gazette has final right of approval over headlines, content, and length/brevity of article.