1. 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

2. 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

3. 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

4. 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
NTTC Training – TY 2016

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

6. 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

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

8. Foreign Tax Credit Simplified limitation 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 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

9. 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 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

10. 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

11. 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

12. 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

13. 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

14. Foreign Tax Quiz
Jerry, single, has a mutual fund that reported $455 of foreign tax on 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

15. 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

16. Foreign Tax Credit or Deduction – QR
Is there a foreign tax credit on the return?
Was any foreign tax reported on Forms 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

17. 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

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