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Foreign Tax Credit

I have a foreign tax credit from a Vanguard Mutual fund of 654. That's just over the limit of 600.

I use HR Block At Home (aka Taxcut) Deluxe and the program seems to be just ignoring the credit!

Can I get away with just claiming $600 even though my 1099-DIV says

654? (If I tell Taxcut 600, it puts it into my 1040 and I get the credit).

Does anyone know why Taxcut is just ignoring this?

Form 1116 seems beyond me, although just putting numbers in the obvious places does get TaxCut to give me the deduction.

Any other advice. (It's not worth hiring an accountant for this, I think).

Reply to
Millwood
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No you can't just assume it's 600 and skip the 1116.

You're sorta stuck with the 1116. Although if you wish, you can itemnize the 654 as taxes on Schedule A, instead.

Reply to
Arthur Kamlet

Is it true that once you itemize you have to stick with that decision unless you get permission from IRS to change?

Anyway the tax savings from deduction would usually be much less.

Reply to
removeps-groups

You can change your choice (credit or deduction) each year and you can even change a prior choice for up to 10 years. You cannot take both in the same year. You can learn more in IRS Pub. 514, Foreign Tax Credit for Individuals,

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Ira Smilovitz Leonia, NJ

Reply to
ira smilovitz

No. It's not a change in accounting method that requires approval. You can itemize this year and take the std deduction next year and switch again the year after.

Reply to
Alan

Whoops... you appear to have been asking about deducting foreign taxes paid rather than taking a credit. Ira answered that.

Reply to
Alan

It's not clear from the instructions under what circumstances the filing of a Form 1116 with $649 foreign taxes paid, would generate a credit of less than $600 (assuming no AMT differences, for the sake of argument). Do you know of any, from experience?

If not filing the form does not result in underpayment of tax, it's hard to see why a self-prepared return would need to bother with the form.

Reply to
Mark Bole

Adding, for the sake of clarity, that the entire foreign tax was reported on a 1099-DIV, not paid to an outlawed country, etc. -- in other words, all the conditions that would need to be met to report a less-than-$600 credit directly on Form 1040, without a Form 1116. This was the scenario presented in the OP.

Reply to
Mark Bole

You can only credit the foreign taxes up to the pro-rated amount of US taxes. To put it another way, if the foreign tax rate was higher than your average US tax rate, you have to carry forward the amount in excess of the US tax rate and hope you can use it in future years.

This bit me one time when I had income subject to Canada and Quebec income tax, since the Quebec rate is quite high and if you're not a resident you don't get the zero-rate deduction that residents do.

R's, John

Reply to
John Levine

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