IRS Form 1116 walkthrough (Foreign Tax Credit)
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File Form 1116 to claim the foreign tax credit if the election, doesn't apply and:
• You are an individual, estate, or trust; and
• You paid or accrued certain foreign taxes to a foreign country or U.S. possession.
You may be able to claim the foreign tax credit without filing Form 1116. By making this election, the foreign tax credit limitation (lines 15 through 23 of the form) won't apply to you.
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In the form I received from my broker, there is an item "foreign tax paid" is $650. Because this amount is greater than $600, I have to file form 1116. This is "passive category income." If this amount is $600, I don't have to file From 1116. I have to file form 1116 to pay about $15 less tax. It seems to me I have to spend about a day to complete this form. Is there a way to make this insanity palatable?
You don't have to complete this form at all, if you don't wish to claim the foreign tax credit. But in your situation, it appears that if you want to claim the credit for taxes paid, then yes, you have to complete this form. Completing this form would allow you to claim a *tax credit,* which is a dollar for dollar reduction in your tax bill (i.e. you would save $650 in taxes, not $15).
You also might have the option (in certain situations) to include taxes paid as a deduction on Schedule A instead of taking the tax credit. Ultimately, this would likely be a lesser tax benefit than the tax credit (particularly if you're better off taking the standard deduction). But it's an option.
IRS Schedule A, Itemized Deductions
Article: www.teachmepersonalfinance.com/irs-schedule-a-instructions/
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Do I need to convert the foreign currency to usd in and use that conversion on this form?
Could you please help to solve the following issue? If the foreign income is 200K, after I applied the exclusion 120K from 2555, how should I fill out form 1116 then?
According to the instructions, you would enter your foreign income in Line 1a, but you would not include any income that you excluded on IRS Form 2555. So if you excluded $120K, you should enter $80K in Line 1a.
I have a 1099-R form for a lump sum distribution of a retirement plan. Federal agency in Puerto Rico.
I'm not sure that there's enough information here to give you a good answer, but I can point you in the right direction. IRS Publication 570, Tax Guide for Individuals With Income From U.S. Possessions (www.irs.gov/pub/irs-pdf/p570.pdf) contains information about properly reporting income from Puerto Rico. Generally, rules can depend on whether or not you are considered a bona fide resident of Puerto Rico, and whether you are required to file both a U.S. tax return and a Puerto Rico tax return. Generally, the U.S. and Puerto Rico have a mutual agreement to avoid double taxation, which is also covered in Publication 570.
Great help! leaving in France, I need to know how to feel out Form1040. Income from retirement from French social security and rents to show on line 1a? or not.
For pensions and rental income, you would check Box c above (passive income), then list your French pension and rental income on Line 1a.
@@teachmepersonalfinance2169 Thank you. Do I also put that amount on Form 1040 ligne 1a?
@@isabellegraham Not necessarily. Form 1040, Line 1a consists of W-2 income that you would earn as an employee. Generally, pension income goes on Lines 5a and 5b (total pension versus taxable amounts).
Rental income is usually calculated on Schedule E, so that you can factor in deductions and other costs. That income then is incorporated into Schedule 1, Line 5. When you've completed all of Schedule 1, you would enter Line 10 from Schedule 1 (which includes rental income as well as income from a lot of other sources), onto Line 8 of your Form 1040.
Below are links to additional articles and videos on W-2, Schedule E, and Schedule 1:
IRS Form W-2, Wage and Tax Statement
Article: www.teachmepersonalfinance.com/irs-form-w-2-instructions/
Video: th-cam.com/video/6pQF29rrizc/w-d-xo.html
IRS Schedule E, Supplemental Income
Article: www.teachmepersonalfinance.com/irs-schedule-e-instructions/
Video: th-cam.com/video/mHH-0QuB3EU/w-d-xo.html
IRS Schedule 1, Additional Income and Adjustments to Income
Article: www.teachmepersonalfinance.com/irs-schedule-1-instructions/
Video: th-cam.com/video/TUMnegmniDI/w-d-xo.html
Foreign Tax Credit is exactly that to me. Foreign. I need to file one of these for someone but I have no idea how to do so. I'm on minute 9 of the video so let's see how this goes..
If you have any specific questions, hit me up!
Please feel free to check out our article, where we've written step by step instructions to help you walk through this tax form! www.teachmepersonalfinance.com/irs-form-1116-instructions/
If you’re looking for tutorials for other IRS Forms that you can file directly through the IRS website, check out our free fillable forms page: www.teachmepersonalfinance.com/free-fillable-tax-forms/
I have to fill out 1116 for a Trust that made $5,000 interest at a US bank, and $3,400 in dividends from a Canadian company (that did issue a 1099-div though) Canada held $534 in tax. Because the total tax bill was computed with the QDTW, and line 5>0, and line 21>22, it says i must adjust the amount on line 1a, unless the trust meets the adjustment exception outlined in section 904(b) . I have read section 904b, and , gosh, what are the adjustment exceptions for Trusts?
I'm not 100% sure, but it seems that Section 904(b) and Treasury Regulations 1.904(b) both refer to calculating your income tax bill without deducting personal exemptions to lower the tax liability. However, I'm not sure what else is applicable to your tax situation.
I definitely think that you should work with a tax professional to navigate this form and properly report your tax liability.
Please explain how married filing jointly IRS tax return deal with the 1116 foramat
A married couple filing a joint return would use IRS Form 1116 in the same manner that a single person would. From the form instructions, here is some clarification on a joint return:
Joint return. If you file a joint return, you can claim the credit based on the total foreign income taxes paid or accrued by you and your spouse.
Combined income. If foreign tax is imposed on the combined income of two or more persons (for example, spouses), the tax is allocated among, and considered paid by, these persons on a pro rata basis in proportion to each person's portion of the combined income, as determined under foreign law and Regulations section 1.901-2(f)(3)(iii).
Combined income with respect to each foreign tax that is imposed on a combined basis (and combined income subject to tax exemption or preferential tax rates) is figured separately, and the tax on that combined income is allocated separately.
Example. You and your spouse reside in Country X, which imposes income tax on your combined incomes. Both of you use the “u” as your functional currency. Country X apportions tax based on income. You had income of 30,000u and your spouse had income of 20,000u. Your filing status on your U.S. income tax return is married filing separately. You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U.S income tax return. Your spouse can claim only 40% (20,000u/50,000u).
My husband is working in USA and I was working in india for 6 months before moving to USA on H4 visa. We applied for double taxation in USA. We were asked to fill 1116 tax document. What documents do we have to submit for my wife's income in india for her income in india? If she has filed tax in india, will my husband get exemption in USA?
I do not have enough information to be able to answer your question, and I am not an expert on the India/US tax treaty. However, this article seems to do a pretty decent job of laying things out. As with most countries, it seems that any taxes you pay to India would be credited to your U.S. tax return. The example in the article shows that this could happen even if you end up with a negative U.S. tax liability (which turns into a credit that you can carry forward to future tax years).
I hope this article helps you better understand how this might impact your tax situation.
www.cpasforexpats.com/post/us-india-tax-treaty
My wife and I are U.S. citizens, but live (temporary residence) in Mexico while teaching abroad. Are we able to file for this Tax Credit on our teaching income?
From what I've read online, it appears that Mexico and the United States have a double taxation treaty in place, that would allow you to claim a foreign tax credit on your U.S. tax return for Mexico income tax that you've paid. Here's a link to a site with more details: www.cpasforexpats.com/post/us-mexico-tax-treaty
I have foreign tax credit carried forward into the current year 2023-24 tax filing. I have no foreign taxes paid in the current year. How do I claim the foreign taxes from prior year ?
You are supposed to carry the credit back one tax year (for 2021 tax year, if your credit is from the 2022 tax year), then apply it forwards, if there is any credit remaining. You may need to amend your prior year tax return, if applicable.
You would need to calculate the credit carryover on Schedule B of Form 1116: www.irs.gov/pub/irs-pdf/f1116sb.pdf