TAX-AIDE Foreign Tax Credit (or deduction) Form 1040Line 47 Pub 4012G-2 Pub 4491Page 242 NTTC Training
TAX-AIDE 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 client May be better to go to paid preparer NTTC Training
TAX-AIDE Foreign Tax 1099-INT or DIV ● Nonrefundable credit – 1040 Line 47 ● 1099-INT or 1099-DIV boxes 6 & 7 NTTC Training
TAX-AIDE Foreign Tax on K-1 ● Box number varies by form ● Must be coded as passive income ● See back of K-1 for codes NTTC Training
TAX-AIDE Foreign Tax Credit ● Nonrefundable credit No benefit if there is no income tax NTTC Training
TAX-AIDE Foreign Tax Credit ● Simplified foreign tax credit method Foreign tax must be from 1099-DIV, INT or K-1* ONLY (all others disqualify) AND Total foreign tax is ≤ $300 ($600 MFJ) ● If not, cannot use simplified method NTTC Training *K-1: tax relating to passive income only (interest or dividends)
TAX-AIDE Excess Foreign Tax Credit ● No carryback or carryover of the unused credits with simplified method Line 47 credit exceeds Line 46 tax ● Client should consider full Form 1116 with paid preparer NTTC Training
TAX-AIDE Foreign Tax Credit ● If simplified method requirements are met Link from Form 1040, line 47, to Form 1116 OR Add Form 1116 NTTC Training
TAX-AIDE Foreign Tax Credit – Form 1116 ● Input amount in top of Form 1116 Can use scratch pad if multiple sources ● No other entries on Form 1116 NTTC Training
TAX-AIDE 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 Sch A, Line 8 Describe as Foreign Tax ● No benefit if not itemizing ● Benefit of deduction is less than of credit! NTTC Training
TAX-AIDE Foreign Tax Quiz Jerry, single, has a mutual fund that reported $455 of foreign tax on 1099-DIV What are his options? a. Full Form 1116 with paid preparer b. If itemizing, he can claim a deduction for the $455 Simplified method is not an option! NTTC Training
TAX-AIDE Foreign Tax Quiz What if Jerry is married and that is all of his foreign tax for 2013 What are his options? a. Claim the whole amount as a FTC (better choice) b. If itemizing, he can claim a deduction for the $455 NTTC Training
TAX-AIDE 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 method limits ● Verify correct credit shown on Line 47 or deduction claimed on Schedule A NTTC Training
TAX-AIDE Foreign Tax Credit or Deduction – Exit Interview ● Show client 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
TAX-AIDE Foreign Tax Credit or Deduction Comments? Questions? NTTC Training