Foreign Tax Deduction - General advice requested
This year I've started to receive an occupational pension from a previous employer back on the Isle of Man. Because the Isle of Man does not have an agreement with the US, Manx income tax is deducted at source. I believe I can claim that on my US taxes when I get around to them. I've had a read around the place, including threads on here, and think I know the basics of what I need to do, but would like advice on the simplest of those options.
I've taken a look at Form 1116 and it looks to be a nightmare. I believe I have an option to simply declare the tax as a deduction instead of using Form 1116. (A key advantage of the Form 1116 approach is to enable a carry-over, but that is not going to be a factor.) The fact that there may be a few dollars difference between the two approaches is not an issue - I'm simply looking for the easiest way of staying legit and if simply taking the deduction removes horrendous set of paperwork, that'll do me. So, for those that have been through this... Is Form 1116 as bad as it looks? I usually use Turbotax if that makes things any friendlier? Is taking the deduction as simple as declaring the gross figure as income and the tax figure as the deduction? Thanks. (I'm getting ahead of the seeming annual rush of tax related threads) |
Re: Foreign Tax Deduction - General advice requested
Originally Posted by celticgrid
(Post 12564644)
I believe I have an option to simply declare the tax as a deduction instead of using Form 1116.
Originally Posted by celticgrid
(Post 12564644)
(A key advantage of the Form 1116 approach is to enable a carry-over, but that is not going to be a factor.)
Originally Posted by celticgrid
(Post 12564644)
Is Form 1116 as bad as it looks?
Originally Posted by celticgrid
(Post 12564644)
I usually use Turbotax if that makes things any friendlier?
Originally Posted by celticgrid
(Post 12564644)
Is taking the deduction as simple as declaring the gross figure as income and the tax figure as the deduction?
|
Re: Foreign Tax Deduction - General advice requested
I'm sure you have searched on Turbotax, but here is one link explaining the foreign tax credit
http://lmgtfy.com/?q=turbotax+1116 https://ttlc.intuit.com/questions/32...m-1116-i-think |
Re: Foreign Tax Deduction - General advice requested
Originally Posted by mrken30
(Post 12564694)
I'm sure you have searched on Turbotax, but here is one link explaining the foreign tax credit
LMGTFY https://ttlc.intuit.com/questions/32...m-1116-i-think As I understand it I would have a few years to claim the credit so if I get in tangle in a few months then I can simply take the hit for a year... |
Re: Foreign Tax Deduction - General advice requested
Originally Posted by theOAP
(Post 12564682)
You had that option on a 2017, Sch. A return, but I'm not sure that deduction will be allowed on a 2018 return (TCJA). Also, IF it is allowed for 2018, does a $300 (MFS) maximum limit apply to foreign taxes paid if using the deduction (Sch. A)?.
Originally Posted by theOAP
(Post 12564682)
No, the key advantage to 1116 is the tax due is offset $ for $ by the foreign tax paid. Taken as a deduction (Sch. A) the foreign tax paid only reduces your taxable income from all sources by the amount of foreign tax paid. That can be a BIG difference.
Originally Posted by theOAP
(Post 12564682)
It's not easy..
Originally Posted by theOAP
(Post 12564682)
Considerably friendlier, but fake 1099-Rs must be made for it to work. (Disclosure - I've never used TurboTax type software.
Thanks for your response. Very helpful. |
Re: Foreign Tax Deduction - General advice requested
Originally Posted by celticgrid
(Post 12564739)
Oh good. I hadn't even started to think about possible changes in what is allowed. And somewhere along the line I missed the $300 limit. So, I'd better get friendly with Form 1116.
Here's the 2017 Schedule A: https://www.irs.gov/pub/irs-pdf/f1040sa.pdf Here's the draft proposal for 2018 Schedule A: https://www.irs.gov/pub/irs-dft/f1040sa--dft.pdf Beware, final versions very seldom end up anything like the draft version.
Originally Posted by celticgrid
(Post 12564739)
In my case the difference is, unfortunately, not big. Hence why I'd be happy to take that hit if it brought simplicity. As per above, looks like that isn't an option anyway.
This is the draft of the new 1040: (Sorry, the link isn't working. Google "Draft 2018 1040"), or try https://www.irs.gov/pub/irs-dft/f1040--dft.pdf Warnings about drafts above apply! This is the new 2018 1040 Schedule 3 which contains the intermediate reporting between 1116 and the 1040. https://www.irs.gov/pub/irs-dft/f1040s3--dft.pdf Warnings on drafts apply. There will be 6 new intermediate schedules. Not everyone will need all 6. Tax advisors are rubbing their hands in glee at the thought of being able to charge for the preparation of additional paperwork. |
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