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North Carolina foreign tax credit

Hi all,

I received a summary of foreign tax paid for one of my Vanguard mutual funds. This was easy to handle on the federal return since I could include it directly on line 47 of the federal 1040 without filing form

1116.

But the NC forms and instructions don't address this situation. Is this income eligible for North Carolina's "Credit for Tax Paid to Another State or Country" on the D-400TC form? The instructions refer to taxes paid directly, and to pro rata share of taxes paid by an S Corporation, but do not mention a person's share of taxes paid by a mutual fund.

The instructions specify that I must "attach a copy of the return filed with the other state or country and a copy of the check or receipt if a balance of tax was paid with the return" but I didn't file a return, Vanguard did. If the tax credit is permitted I assume attaching the statement from Vanguard would be sufficient.

NC tax forms:

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Thanks, and happy tax season.

Reply to
B Sheldon
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I don't think so. NC is different from most other states in allowing a credit for taxes paid to another country (most states only allow a credit for tax paid by residents for income taxed by another state), but this appears to be for a case where a NC resident had earned income in another country, to which tax was paid by filing a return. For example, if the NC resident worked in Canada and filed a T-1 with Revenue Canada, I think this would apply, but not in the case of investment income taxed through mutual funds. at least you get the credit on your federal return.

Reply to
Tom Healy CPA

Assuming the taxpayer is entirely made whole by the foreign tax credit on his federal return, which is generally the case, it doesn't seem likely that a state would allow an additional credit for the foreign tax. NC is unusual in allowing a resident credit for taxes paid to another country.

In order to calculate the credit, you would have to know the amount of income that was taxed by the foreign country (or countries) in order to have a number to put on Line 2 of the D400TC (which you can find here:

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. If theVanguard statement gives you that number, you can calculate a creditby completing the form. The problem is that you are required toattach a copy of the return filed with the other country -- which youdid not file; as you noted. Neither the instructions nor the statute (N.C. Gen. Stat. § 105-151) addresses the issue of taxes paid to a foreign country on investment income via a mutual fund -- so you might attach a copy of the Vanguard statement as backup and see what you get.

Katie in San Diego

Reply to
Katie

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