Foreign Tax Credit
(or deduction)
Form 1040 Line 48
Pub 4012 G-2
Pub 4491 Part 5
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NTTC Training – 2014
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Foreign Taxes: In Scope
● Advanced Certification

Based on investment income, and

Less than $300 ($600 MFJ), OR

Deducted on Schedule A
OR
● International Certification
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NTTC Training – 2014
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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
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NTTC Training – 2014
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Foreign Tax 1099-INT or DIV
● Nonrefundable credit – 1040 Line 47
● 1099-INT or 1099-DIV boxes 6 and 7
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Foreign Tax on K-1
● Box number varies by form
● Must be coded as passive income
● See back of K-1 for codes
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Foreign Tax Credit
● Nonrefundable credit

No benefit if there is no income tax
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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
* K-1: tax relating to passive income only (interest or dividends)
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NTTC Training – 2014
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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
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NTTC Training – 2014
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Foreign Tax Credit
● If simplified method requirements are met

Link from Form 1040, line 48, to Form 1116
OR

Add Form 1116
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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
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NTTC Training – 2014
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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!
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NTTC Training – 2014
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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!
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NTTC Training – 2014
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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
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NTTC Training – 2014
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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
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NTTC Training – 2014
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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
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Foreign Tax Credit or Deduction
Comments?
Questions?
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