VITA: 01/24/09 Lesson 25: Foreign Tax Credit Winter 2008 Kristina Shroyer

Lesson 25: Foreign Tax Credit Introduction This credit is on line 50 of Form 1040 or on line 47 of Form 1040 This credit applies to taxpayers who have paid or accrued foreign taxes to a foreign country on foreign sourced income and are subject to US taxes on that income Our VITA scope for this topic is very limited unless you go off on our own and get the International Certificate ♦ So these slides don't go through the whole chapter just over the one situation applicable to the Intermediate/Advanced Certificates ♦ I'll explain when you can do this credit and when it is in scope VITA Scope: If the foreign tax is reported on a Form 1099-INT and a 1099-DIV a Form 1116 may not need to be completed to claim the foreign tax credit This is the situation in which you will deal with the foreign tax credit ♦ The taxpayer will NOT need to File a form 1116 ♦ The credit will be reported on line 50 (NOT 47) of the Form 1040 In your book the part of Lesson 25 within the scope of VITA is only pages 25-1 and 25-2

Lesson 25: Foreign Tax Credit Foreign Taxes Reported on Form 1099-INT or Form 1099-DIV Taxpayers who receive a Form 1099-INT or a Form 1099-DIV may have amounts reported in Box 6 ♦ This means foreign taxes have been paid on their behalf by the issuer of the 1099-INT and 1099-DIV ♦ Let's look at a 1099-INT and 1099-DIV Box 6 When the taxpayer does not need to file a Form 1116 to get the Foreign Tax Credit The taxpayers does not need to file a Form 1116 if both of the following are true ♦ The only foreign taxes paid the taxpayer has are reported on Form 1099-DIV or Form 1099-INT (They can have multiple 1099-INTs and 1099-DIVs with amounts in Box 6) AND ♦ The total amounts from all of these documents is not more than $300 (or $600 if the taxpayer's filing status is Married Filing Joint) If the taxpayer is not required to File a Form 1116 for their Foreign Tax Credit it is reported on Line 50 of Form 1040 Any taxpayer with foreign taxes NOT eligible for the above (meaning the Form 1116 needs filed) should be referred to a professional tax preparer Don't forget Foreign taxes can be claimed as a Credit or on the Schedule A as a deduction In this case the Credit is usually better but you should still make sure you give the taxpayer the better of the two options Make sure and read through the tips on reporting this one type of Foreign Tax Credit in TaxWise