TAX-AIDE Foreign Tax Credit (or deduction) Form 1040Line 48 Pub 4012G – 2 Pub 4491 Part 5 – Lesson 25

TAX-AIDE Foreign Taxes: In Scope ● Advanced Certification Simplified election  Based on investment income -AND-  Less than $300 ($600 MFJ) -OR- Deducted on Schedule A ● International Certification NTTC Training – TY2015 2

TAX-AIDE 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 NTTC Training – TY2015 3

TAX-AIDE 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 NTTC Training – TY2015 4

TAX-AIDE Foreign Tax 1099-INT or DIV ● Nonrefundable credit – 1040 Line 47 ● 1099-INT or 1099-DIV boxes 6 and 7 NTTC Training – TY2015 5

TAX-AIDE Foreign Tax on K-1 ● Box number varies by form ● Must be coded as passive income ● See back of K-1 for codes NTTC Training – TY2015 6

TAX-AIDE Foreign Tax Credit ● Nonrefundable credit No benefit if there is no income tax NTTC Training – TY2015 7

TAX-AIDE Foreign Tax Credit ● Simplified foreign tax credit method Foreign tax must be from 1099-DIV, 1099-INT or K-1* ONLY (all others disqualify) AND Total foreign tax is ≤ $300 ($600 MFJ) ● If not, cannot use simplified method NTTC Training – TY *K-1: tax relating to passive income only (interest or dividends)

TAX-AIDE Excess Foreign Tax Credit ● No carryback or carryover of the unused credits with simplified method Line 48 credit exceeds Line 47 tax ● Taxpayer should consider full Form 1116 with paid preparer NTTC Training – TY2015 9

TAX-AIDE Foreign Tax Credit ● If simplified method requirements are met Link from Form 1040, line 48, to Form 1116 OR Add Form 1116 NTTC Training – TY

TAX-AIDE Foreign Tax Credit – Form 1116 ● Input amount in top of Form 1116 Can use scratch pad if multiple sources ● No other entries on Form 1116 NTTC Training – TY

TAX-AIDE 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 Sch A, Line 8 Describe as Foreign Tax ● No benefit if not itemizing ● Benefit of deduction is less than of credit! NTTC Training – TY

TAX-AIDE Foreign Tax Quiz Jerry, single, has a mutual fund that reported $455 of foreign tax on 1099-DIV What are his options? a. Full Form 1116 with paid preparer b. If itemizing, he can claim a deduction for the $455  Simplified method is not an option! NTTC Training – TY

TAX-AIDE Foreign Tax Quiz What if Jerry is married and that is all of his foreign tax for 2013 What are his options? a. Claim the whole amount as a FTC (better choice) b. If itemizing, he can claim a deduction for the $455 NTTC Training – TY

TAX-AIDE Foreign Tax Credit or Deduction – QR ● Is there a foreign tax credit on the return? ● Was any foreign tax reported on forms 1099 or K-1? ● Is the total amount within the simplified method limits ● Verify correct credit shown on Line 47 or deduction claimed on Schedule A NTTC Training – TY

TAX-AIDE 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

TAX-AIDE Foreign Tax Credit or Deduction Comments? Questions? NTTC Training – TY