celticgrid

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)

theOAP

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)?

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.

It's not easy.
Considerably friendlier, but fake 1099-Rs must be made for it to work. (Disclosure - I've never used TurboTax type software.)
Yes, that's how using the deduction method works.

mrken30

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

celticgrid

Thanks. Yes, I think I know the ins and outs, but still got a bit of a shock looking at the 2-page form with 24 pages of gobbledegook as instructions!

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...

celticgrid

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.

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.

I know that different folks' brains seem better suited to different fields. Some, like yours, seem well tuned to financial nuances. Mine isn't. Therefore, please be advised that should BE ever launch an 'understatement of the year' competition, you've got my vote - even if you disagree with that view!

I already have dummy 1099-R paperwork ready to go. Picked up that tip from somewhere else in the forum archives.

Thanks for your response. Very helpful.

theOAP

The $300 limit applies to a shortcut version of completing 1116, but some tax sites infer that is also a limit for foreign tax deductions. I've never used either so I cannot comment beyond saying that as of today, no one knows for certain what will and won't be allowed on the new 1040/Sch.A.

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.

Wait and see what the new forms and rules allow. If you wish, you may be able to use the deduction, but very few do. It's likely we won't know until end of January 2019.

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.