Foreign Tax Credit (or deduction) Pub 4012 Tabs F and G Pub 4491 – Lesson 25 #10 caution applies to first bullet, not second; moved up #12 updated screenshot and speaker notes

Foreign Taxes: In Scope Advanced Certification Simplified limitation election Based on passive income -AND- Less than $300 ($600 MFJ) -OR- Deducted on Schedule A International Certification Full Form 1116 Passive income for in-scope returns is primarily dividends and interest income NTTC Training – TY 2016

Foreign Tax Credit Interview Always do a complete interview BEFORE starting the return Review prior year return – any FTC? Review 1099-INT, -DIV or K-1s – any FTC? If more than $300 ($600 MFJ) Discuss options with taxpayer May be better to go to paid preparer Emphasize Only the simplified limitation method for foreign tax credits is in scope, unless certified for International NTTC Training – TY 2016

Foreign Accounts Interview Forms 1099 now have FATCA requirement box If checked, taxpayer may have to file Form 8938, which is out of scope Form 8938 is in addition to FinCEN 114 report of foreign bank accounts or signature authority FinCEN 114 replaced the old TD 90-22.1 NTTC Training – TY 2016

Foreign Tax 1099-INT or DIV 1099-INT or 1099-DIV NTTC Training – TY 2016

Foreign Tax on K-1 Box number varies by form Must be coded as passive income See back of K-1 for codes Advise If not comfortable preparing return with K-1s Refer taxpayer to more experienced Counselor Request guidance from LC or QR NTTC Training – TY 2016

Foreign Tax Credit Nonrefundable credit No benefit if there is no income tax NTTC Training – TY 2016

Foreign Tax Credit Simplified limitation method Foreign tax must be from 1099-DIV, 1099-INT or K-1* ONLY (all others disqualify) - AND - Total foreign tax is ≤ $300 ($600 MFJ) If not, cannot use simplified limitation method Emphasize Only the simplified limitation method for foreign tax credits is in scope, unless certified for International * K-1: tax relating to passive income only (interest or dividends) NTTC Training – TY 2016

Excess Foreign Tax Credit No carryback or carryover of the unused credits with simplified limitation method Line 48 credit exceeds Line 47 tax Taxpayer should consider full Form 1116 with paid preparer Emphasize Recall that FTC in NONrefundable If Taxpayer would be well served to preserve the carryback/over of unused credits, refer to paid preparer If the regular foreign tax credit method is used (full Form 1116) and not all the credit is used, the unused credits can be carried back one year and forward ten years For someone with lots of foreign tax credits, it would be worthwhile for them to use a paid preparer That is not our usual taxpayer NTTC Training – TY 2016

Entering Foreign Tax Credit – Small Amounts Usually, can enter with related interest or dividend income Caution: TaxSlayer accepts all amounts – even if over the simplified limitation limit Foreign tax on K-1 use 1116 input screen (next slide) Full Form 1116 is available in PL 2016; not in PL2015 at this time This and the next slides are based on 2016 Practice Lab If entering on the related interest or dividend input screens, ensure the total amounts are less than the $300/$600 limits for the simplified method NTTC Training – TY 2016

Entering Foreign Tax Credit When Amounts are Bigger TaxSlayer 1116 input screen Does not allow an entry over the simplified limitation amount Search 1116 or click line 48 in Summary/ Print TaxSlayer has promised to add the full Form 1116 – the effect of that is unknown at this time Also use the 1116 screen if foreign tax is reported on a K-1 NTTC Training – TY 2016

Foreign Tax Credit 1116 Input Screen Input amount (this screen for MFJ) Will show $300 for single, HoH, MFS or QW TaxSlayer will not allow an entry if the amount exceeds the simplified limitation election on this input screen Caution: Entries on interest or dividend income screens are not limited NTTC Training – TY 2016

Foreign Tax Deduction Too much foreign tax to use simplified method? May claim an itemized deduction for all the foreign income taxes (cannot split) Input amount on No benefit if not itemizing Benefit of deduction is less than of credit! Emphasize taxpayers with substantial amount of foreign tax credit should be referred to a paid preparer NTTC Training – TY 2016

Foreign Tax Quiz Jerry, single, has a mutual fund that reported $455 of foreign tax on 1099- DIV What are his options? Full Form 1116 with paid preparer If itemizing, he can claim a deduction for the $455 Simplified method is not an option! Encourage discussion NTTC Training – TY 2016

Foreign Tax Quiz What if Jerry is married and that is all of his foreign tax for 2013 What are his options? Claim the whole amount as a FTC (better choice) If itemizing, he can claim a deduction for the $455 Encourage discussion NTTC Training – TY 2016

Foreign Tax Credit or Deduction – QR Is there a foreign tax credit on the return? Was any foreign tax reported on Forms 1099 or K-1? Is the total amount within the simplified limitation method limits Verify correct credit shown on Line 48 or deduction claimed on Schedule A Emphasize: taxpayers with substantial amount of foreign tax credit should be referred to a paid preparer NTTC Training – TY 2016

Foreign Tax Credit or Deduction – Exit Interview Show taxpayer where foreign tax credit was claimed Explain why no benefit (no tax) Or show where deduction was claimed Or explain did not itemize NTTC Training – TY 2016

Foreign Tax Credit or Deduction Comments Questions NTTC Training – TY 2016