Form 1116 Questions


N

njoracle

Assumptions for 2010 Return using Turbotax:

Filing MFJ

Foreign (Canada) Taxes Available for credit -- Line 13 Form 1116 = 860
Income before Exemptions -- Line 41 1040 and Line 17 Form 1116 = 54,000
Dividends from Foreign Sources -- Line 7 and line 16 Form 1116 = 4620

Line 19 Tax Due -- Line 44 1040 and Line 19 of 1116 = 4900

Line 18 Divide Line 16 by Line 17 of Form 1116 -- 4620/54000 = .0856

Line 20 1116 Line 18 X Line 19 -- Max Credit = 419 to Line 47 Form 1040

Questions:

(1) My understanding is that while the amount of tax withheld by Canada is
based on a 15% rate, my tax rate is less then 10%. Therefore, I am not
entitled to the full Foreign Tax Credit. Is that right?

(2) The balance of the available credit 860-419 = 441 is carried forward.
However, since I don't expect my tax rate to ever get above 10%, I assume
I will never be able to take advantage of the forwarded tax credit. Is
that correct?
 
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R

removeps-groups

Foreign (Canada) Taxes Available for credit -- Line 13 Form 1116 = 860
Income before Exemptions -- Line 41 1040 and Line 17 Form 1116 = 54,000
Dividends from Foreign Sources -- Line 7 and line 16 Form 1116 = 4620

Line 19 Tax Due -- Line 44 1040 and Line 19 of 1116 = 4900

Line 18 Divide Line 16 by Line 17 of Form 1116 -- 4620/54000 = .0856

Line 20 1116 Line 18 X Line 19 -- Max Credit = 419 to Line 47 Form 1040

Questions:

(1) My understanding is that while the amount of tax withheld by Canada is
based on a 15% rate, my tax rate is less then 10%. Therefore, I am not
entitled to the full Foreign Tax Credit. Is that right?
Right.

(2) The balance of the available credit 860-419 = 441 is carried forward.
However, since I don't expect my tax rate to ever get above 10%, I assume
I will never be able to take advantage of the forwarded tax credit. Is
that correct?
Right. Also the FTC carryover is only available for 10 years.

BEGIN QUOTE http://www.irs.gov/publications/p514/ar02.html#en_US_publink1000224640

If, because of the limit on the credit, you cannot use the full amount
of qualified foreign taxes paid or accrued in the tax year, you are
allowed a 1-year carryback and then a 10-year carryover of the unused
foreign taxes.

This means that you can treat the unused foreign tax of a tax year as
though the tax were paid or accrued in your first preceding and 10
succeeding tax years up to the amount of any excess limit in those
years. A period of less than 12 months for which you make a return is
considered a tax year.

END QUOTE

But who knows what will happen in the future -- maybe your income will
go up, your itemized deductions will go down, filing status may change.
 
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N

njoracle

Right. Also the FTC carryover is only available for 10 years.

BEGIN QUOTE http://www.irs.gov/publications/p514/ar02.html#en_US_publink1000224640

If, because of the limit on the credit, you cannot use the full amount
of qualified foreign taxes paid or accrued in the tax year, you are
allowed a 1-year carryback and then a 10-year carryover of the unused
foreign taxes.

This means that you can treat the unused foreign tax of a tax year as
though the tax were paid or accrued in your first preceding and 10
succeeding tax years up to the amount of any excess limit in those
years. A period of less than 12 months for which you make a return is
considered a tax year.

END QUOTE

But who knows what will happen in the future -- maybe your income will
go up, your itemized deductions will go down, filing status may change.
Or Steve Forbes gets elected President and he passes a 15% flat tax. ;-)
Thanks for your response and confirmation of my thoughts.
 

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