Resident tax expert Lee Hadnum answers readers’ most pressing trading tax questions.

Q: I’m not a US citizen or Green Card holder and do not live in the United States. However I do trade options and futures using US brokerages. I have signed the W-8BEN form with the brokerage.
Please can you tell me if I need to pay taxes to the IRS on my capital gains from trading futures and options?

A: It’s likely you will be classed as a “non-resident alien” for US tax purposes. As such, providing the only business you have in the United States is in investments (stocks, mutual funds, commodities) within a US dollar-denominated brokerage firm, you will not be subject to US capital gains tax. There should also be no withholding by the brokerage firm.

In terms of dividends, as a non-resident alien you face a dividend tax rate of 30 per cent on dividends paid out by US companies. However, you are excluded from this tax if the dividends are paid by foreign companies or are interest-related dividends or short-term capital gain dividends. The 30 per cent rate can also be lower depending on the treaty between your home country and the United States..

Excerpted from an article originally published in the May/Jun 2011 issue of YourTradingEdge magazine. All rights reserved. © Copyright 2011, Your Media Edge Pty Ltd.
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