Foreign Tax Credit Puns

If I buy VXUS in a non-vanguard broker, and DCA throughout the year, how do I end up claiming the FTC? Morever, how would this play out for other ETFs like CQQQ? And finally- can you apply this to individual stocks / ADRs?

Happy New Year!

Just helped a client to use her foreign tax credit carryover from previous years to lower her tax liability and thought it would be useful for this expat community. Go #TaxSavings!

As you may already be aware, foreign tax credit is one of the ways to mitigate double taxation. Re: the unused portion of foreign tax credit, you can carry back for one year and then carry forward for 10 years.

Some questions that you may want to check with your CPAs..

Have you claimed the foreign tax credit on your US return in the past? Do you know if you have some unused foreign tax credit carryover? Can it be used to lower my tax liability this year? Does it make sense to amend my prior year return to recoup some of the taxes paid in prior year?

If you have any questions, please feel free to contact Cross Country Tax Consulting (https://www.cctaxconsulting.com/)

I plan to go to a tax professional when the time comes but I’m still searching for a job. I’ve done some reading on filing taxes and I initially thought the FEIE was a way better deal as long as I don’t earn above around 100K USD because I’ll have no taxable income under that if I understand right PLUS I can essentially defer my student loans. But I keep seeing articles saying that the foreign tax credit is better if you are living in a higher taxes country which the U.K. is. I don’t possibly see how though. From what I understand with the foreign tax credit I’d still pay the UK’s higher tax and then probably no US tax when matching how much I would essentially pay the government here but miss out on the benefit of lowering student loan payments.

Sorry if this isn’t the place, and again I plan to ask a professional when the time comes, but I was wondering if anyone has done either of these and can help me understand a bit better? Thank you!!!

After spending just over a year in Canada, I moved back to the US in February.

I purchased BABA stocks in January and left Canada pretty much at the peak price. Recently (back in the US) I sold for a huge loss.

The fact that I would need to pay taxes on the losses (deemed disposition at the time I left Canada) frustrates the heck out of me.

Can I count the departure tax as foreign tax credit in US? Say, I need to pay departure tax of 1000$. Could my US tax be reduced by this amount?

Hi everyone,

hoping to get some feedback from experience from people having rental income abroad and using foreign tax credit.

I currently live in the US and have a rental property in France. In France, taxes on income are due during the summer, in the US they're due in April.

My CPA used cash method of accounting on my return for last year, meaning that I didn't have to file for an extension to wait for the income tax return from France to apply the exclusion in the US, and I instead applied the tax credit on french income taxes paid during the year. I will keep this method of accounting as I think it makes sense and doesn't require to file an extension every single year to wait for the french tax return amount.

A friend of mine that is in the same situation told me that he spoke with multiple CPAs and tax experts and they said that's it's very common practice for people the have rental property in France to file an extension every year to wait for french tax return, so I believe they're using accrual method of accounting.

To me, this doesn't make sense as it makes it much more complex to have to file an extension every year, why not use cash method? Am I missing something?

I plan on doing my own tax return next year on the basis of what my CPA did last year, so I'd love to get some feedback and potential explanations for this logic.

Thanks a lot in advance!

I'm trying to determine if it's worth it for me to switch. An accountant does my taxes because I have a little trouble understanding tax law. How much do I stand to save a year by switching?

For simplicity let's say:

1. I have $100K in my brokerage account that I have spilt between VTI and VXUS.
2. The weight of VTI and VXUS mirrors VT's weight between US and foreign exactly.
3. I'm a US citizen.

Are there any other parameters we need to set?

Edit:

Some great responses. Thank you. My one minor gripe is that getting a bit tired of post that have nothing to say other than, "Unless you have A LOT of money, it doesn't matter." If that's your conclusion, great, but at least post some numbers first.

Regardless of my financial status, there are people on this forum who DO have a lot of money. There are people here who are willing to do a few more minutes of work once a month to look up the VT split and deposit into two ETFs instead of just one. If you, personally, don't think it's worth the effort to do that for your financial situation, that's fine--no one here is judging you for wanting to keep it simple. But don't assume your opinion on the matter has to apply to everyone else in every other financial situation. If some of us want to spend a few more minutes every month to squeak another basis point or two, that's our business.

Let's post some numbers and let everyone decide for themselves whether they think it's worth it.

Can an S-Corp claim foreign tax credit or is it passed to the shareholder of the S-Corp? Confused about this.

I own some US stocks that receive dividends. USA withholds 15% of it I believe.

Is claiming the tax credit automated when reporting foreign investment income? or is there another form?

1. Why do people go 100% VT/VTWAX when you don't get the foreign tax credit?

2. Why is it that you only get the foreign tax credit in a taxable account and NOT a retirement account like a Roth IRA?

3. Is it difficult to file this credit in tax season so much so that it's better to not invest in international funds?

I'll be moving to Japan when the borders open back up as I have a job offer lined up, but I'm having a hard time understanding how withholding taxes on my Canadian-sourced dividend income will be taxed in Japan when I arrive.

Let's say I earn $50,000 CAD in Canadian dividend income per year, and I'm charged a withholding tax of 15% on it ($7,500) on the Canada side.

What happens in Japan with regard to this? It looks like in the first few years of living in Japan I don't need to claim foreign income if I don't remit it back to Japan, so do I need to claim anything for this?

Can I use this 15% withholding tax as a foreign tax credit towards my Japan-sourced income? If not, is the 15% my total tax liability?

Sorry if the questions are simple or explained elsewhere! I've tried searching around for days and haven't found great answers.

Before anyone starts debating, this is not another one one of those 'VTWAX vs VTSAX/VTIAX" posts. I am not asking what is the best percentage allocation, I personally believe that the market cap makes the most sense.

I am new to the bogleheads community and investing in general and recently made the move to switch all of my Roth IRA holdings to VTWAX after seeing various posts about the fund as well as doing my own research about it.

I am convinced that VTWAX is the right approach to buying the haystack and achieving true global diversity.

I have maxed out my Roth contributions and have $60K that I would like to invest in a brokerage account. I was ready to use that money to buy 100% VTWAX but started to see posts from several members recommending that VTSAX & VTIAX at market caps is better in a taxable account due to getting a FTC as well as lower ER.

I plan to invest $60K and then add $250 week for the foreseeable future. I like the idea of not having to re balance any funds even though I hear that it's not too complicated to do with only 2 funds.

I had a few questions about this as I plan on holding these funds for at least 30 years

1. How much is the FTC? Would it make a substantial difference on $60,000 (or $24,000 I guess since it would be 40% of $60K)? Over the course of 30 years would that FTC add up to a very large amount since the account would be much larger? Would I be stupid to miss out on this credit in order to avoid having to re balance one (maybe a few times a year)?
2. Is auto investing $250 to VTWAX, the same as auto investing $150 VTSAX and $100 VTIAX? If it is then wouldn't it always be perfectly balanced? When would I need to rebalance and how often?
3. Splitting the funds seems to also have a lower expense ratio, I know short term that will make almost no difference but does that make a significant difference in the long term?
4. Having VTWAX seems to be very low maintenance and a real set it and forget it fund. Are some of the tax inefficiencies listed above worth that convenience?

I am curious as to what most people in this community do with their taxable accounts so I created a poll below. Again this is ONLY for taxable accounts

View Poll

Can I use form 1116 for income from Taiwan?

Someone told me they Taiwan is not on the treaty list, but someone else told me that I can use 1116 foreign tax credit for ANY country.

What foreign tax credits can be used to offset US tax from PFICs? Assuming distributions and sale of a PFIC stock without any elections, I was reading through the instructions for form 8621, and it mentions foreign tax credit in Part V (for section 1291 taxation) but even that is hard to understand. Can you only use foreign tax credits from foreign tax paid on the distributions (dividends) and sale of the stock (capital gains)? Or since the distributions/sale are considered ordinary income, can general category income tax credits be used to reduce or eliminate the tax? I'm trying to figure out the damage from making the mistake of buying a PFIC before knowing about PFICs. Any help is appreciated.

Suppose I invest into stocks and my current country taxes me 28% on both dividends and capital gains. Would both of these be qualified deductions in Form 1116 Foreign Tax Credit so that I end up not having to pay any US taxes?

Follow up question: if it's completely up to me file taxes in both countries, can I Choose which country gets my taxes?

I was thinking of doing VTI/VXUS in my taxable account or just doing VT since it’s the same thing minus the foreign tax credit. How big of an impact would this decision make in terms of the foreign tax credit?

Ok so I went with VT (invested $13k) but now I’m seeing posts about the foreign tax credit issue. Mine’s in a taxable account. I’d like to simplify my holdings and just do a buy and hold strategy (I have a robo account with that tax loss harvesting and it’s a tax headache every year so I won’t be selling out any time soon).

Can some explain to me the practical impact of when VT doesn’t pass through the foreign tax credit? Is it just that I don’t get the deduction on my tax return? For my size investment is it something I’ll notice or are we talking a few bucks each year?

Hello,

I am a US citizen living and working in Germany. I want to use the foreign tax credit (Form 1116) next time I report my taxes in the US.

As far as I can tell, I would need to report to the US how much German taxes I pay.

There's a form in Germany I will receive that tells me how much taxes I paid to the German government, but I won't receive that likely until after July of that year.

For the US taxes, I need to report by April 15. How does one report to the US the taxes paid to the German government, if the US taxes need to be reported before getting that information from Germany?

Any help is appreciated.

Thanks

Hi everyone, new here and this is a bit of complex situation, sorry and I'll see if I can explain it well.

I am American living in Canada. I am both a tax resident of the US and Canada. Many US states, including mine (Illinois) choose not to recognize the federal tax treaty.

Here is my current situation:

• Earn income in Canada
• Income is taxed by Canada and my province
• Get US federal foreign tax credits, don't owe any US income tax
• DO NOT get foreign tax credits from Illinois, so get taxed again on that income

Here is what I wonder if could be possible:

• File US and Illinois income taxes to establish a foreign tax amount, and pay some tax amount to Illinois
• On Canadian taxes, get a foreign tax credit based on the taxes I had to pay in Illinois

In other words, use the Canadian foreign tax credit to subsidize the fact that Illinois is a bit of an ass. I know that's not too fair to Canada but these double taxes are killing me.

I've read the treaties and documents and I don't see anything that would make this illegal. Would this be okay?

Hi Folks,

Is there an efile-friendly form or standard template I can use to attach the detailed computation of the available FTC carryover balance? Or is my only option to manually draw up a statement and mail it in?

I'm helping a UK resident relative of mine with their US tax return this year. I have her prior returns for reference (she did the streamlined amnesty to get caught up last year) and it is all simple enough, but I need to use some of her carryover balance this year. I understand how the carryover computation works but I couldn't figure out another way to "attach detailed computation" as required on 1116 line 10.

Any tips would be appreciated. Would be annoying if this prevented her from e-filing since fillable forms says it doesn't support statements.

I’m looking for advice on what tax prep software to use. I have lived abroad for a long time and have always used accountants, but am trying to do my taxes myself this year. TurboTax seems really problematic—my income is above the foreign income exclusion cutoff, so I need to apply the FIE, then also apply the foreign tax credit to the remaining income above that amount. But no matter what I try in TurboTax, I can’t seem to get it to allow me to take both. On top of that, the explanations and interface for the foreign tax/exclusion bits are just nonsensical—unlike most of their platform, TurboTax seems to have just thrown in the foreign tax/exclusion sections as an afterthought with a lot of technical terms that make no sense to me. Has anyone found better software?