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Foreign Sourced Income And Foreign Tax Credit
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tb
Jul 18, 2016, 4:15:08 PM7/18/16
to
This is probably going to go down as a stupid question, but please keep
in mind that I'm not a tax professional...
Suppose that I have some sort of foreign sourced income that is taxed
by both the foreign country and the USA. The foreign country allows
for a foreign tax credit and so does the USA.
So, do I first prepare the foreign tax return and then take the foreign
tax credit on my U.S. return? But if I do that, how can I claim the
tax credit on my foreign return? It seems to me that things are
recursive. How do things really work in these situations?
--
tb
--
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<< that may be imposed upon the taxpayer. >>
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in mind that I'm not a tax professional...
Suppose that I have some sort of foreign sourced income that is taxed
by both the foreign country and the USA. The foreign country allows
for a foreign tax credit and so does the USA.
So, do I first prepare the foreign tax return and then take the foreign
tax credit on my U.S. return? But if I do that, how can I claim the
tax credit on my foreign return? It seems to me that things are
recursive. How do things really work in these situations?
--
tb
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
maria...@gmail.com
Jul 18, 2016, 5:35:46 PM7/18/16
to
On Monday, July 18, 2016 at 1:15:08 PM UTC-7, tb wrote:
> This is probably going to go down as a stupid question, but please keep
> in mind that I'm not a tax professional...
>
> Suppose that I have some sort of foreign sourced income that is taxed
> by both the foreign country and the USA. The foreign country allows
> for a foreign tax credit and so does the USA.
>
> So, do I first prepare the foreign tax return and then take the foreign
> tax credit on my U.S. return? But if I do that, how can I claim the
> tax credit on my foreign return? It seems to me that things are
> recursive. How do things really work in these situations?
>
> --
> tb
Normally, you would file a non-resident tax return in your non-resident location and pay tax as a non-resident without any credits there. After that, you would file a resident tax return in your resident location and take a foreign tax credit on this return for the tax paid to the foreign country on the double-tax income. The process and taxation may be different if there is a tax treaty between the two countries.
> This is probably going to go down as a stupid question, but please keep
> in mind that I'm not a tax professional...
>
> Suppose that I have some sort of foreign sourced income that is taxed
> by both the foreign country and the USA. The foreign country allows
> for a foreign tax credit and so does the USA.
>
> So, do I first prepare the foreign tax return and then take the foreign
> tax credit on my U.S. return? But if I do that, how can I claim the
> tax credit on my foreign return? It seems to me that things are
> recursive. How do things really work in these situations?
>
> --
> tb
Maria U. Ku, CPA
Oakland, CA
Alan
Jul 18, 2016, 7:41:35 PM7/18/16
to
On 7/18/16 2:35 PM, maria...@gmail.com wrote:
> On Monday, July 18, 2016 at 1:15:08 PM UTC-7, tb wrote:
>> This is probably going to go down as a stupid question, but please keep
>> in mind that I'm not a tax professional...
>>
>> Suppose that I have some sort of foreign sourced income that is taxed
>> by both the foreign country and the USA. The foreign country allows
>> for a foreign tax credit and so does the USA.
>>
>> So, do I first prepare the foreign tax return and then take the foreign
>> tax credit on my U.S. return? But if I do that, how can I claim the
>> tax credit on my foreign return? It seems to me that things are
>> recursive. How do things really work in these situations?
>>
>> --
>> tb
>
> Normally, you would file a non-resident tax return in your non-resident location and pay tax as a non-resident without any credits there. After that, you would file a resident tax return in your resident location and take a foreign tax credit on this return for the tax paid to the foreign country on the double-tax income. The process and taxation may be different if there is a tax treaty between the two countries.
>
> Maria U. Ku, CPA
> Oakland, CA
>
Nothing wrong with the answer other than it overlooks the situation
> On Monday, July 18, 2016 at 1:15:08 PM UTC-7, tb wrote:
>> This is probably going to go down as a stupid question, but please keep
>> in mind that I'm not a tax professional...
>>
>> Suppose that I have some sort of foreign sourced income that is taxed
>> by both the foreign country and the USA. The foreign country allows
>> for a foreign tax credit and so does the USA.
>>
>> So, do I first prepare the foreign tax return and then take the foreign
>> tax credit on my U.S. return? But if I do that, how can I claim the
>> tax credit on my foreign return? It seems to me that things are
>> recursive. How do things really work in these situations?
>>
>> --
>> tb
>
> Normally, you would file a non-resident tax return in your non-resident location and pay tax as a non-resident without any credits there. After that, you would file a resident tax return in your resident location and take a foreign tax credit on this return for the tax paid to the foreign country on the double-tax income. The process and taxation may be different if there is a tax treaty between the two countries.
>
> Maria U. Ku, CPA
> Oakland, CA
>
where a US citizen is a resident of the foreign country. That person
would file a resident tax return for that country and could avail
himself of any foreign tax credits offered to its residents to avoid
double taxation. The US would not allow a foreign tax credit on that
income as the US credit is only available for foreign taxes paid. In
this instance, foreign taxes paid would be reduced by the foreign tax
credit on the foreign tax return. Naturally, if a tax treaty existed
between the US and that foreign country, it would determine how double
taxation is avoided.
Arthur Rubin
Jul 19, 2016, 3:02:55 PM7/19/16
to
On Monday, July 18, 2016 at 4:41:35 PM UTC-7, Alan wrote:
> Nothing wrong with the answer other than it overlooks the situation
> where a US citizen is a resident of the foreign country. That person
> would file a resident tax return for that country and could avail
> himself of any foreign tax credits offered to its residents to avoid
> double taxation. The US would not allow a foreign tax credit on that
> income as the US credit is only available for foreign taxes paid. In
> this instance, foreign taxes paid would be reduced by the foreign tax
> credit on the foreign tax return. Naturally, if a tax treaty existed
> between the US and that foreign country, it would determine how double
> taxation is avoided.
It's more complicated than that,if the US citizen has US-sourced income.
> Nothing wrong with the answer other than it overlooks the situation
> where a US citizen is a resident of the foreign country. That person
> would file a resident tax return for that country and could avail
> himself of any foreign tax credits offered to its residents to avoid
> double taxation. The US would not allow a foreign tax credit on that
> income as the US credit is only available for foreign taxes paid. In
> this instance, foreign taxes paid would be reduced by the foreign tax
> credit on the foreign tax return. Naturally, if a tax treaty existed
> between the US and that foreign country, it would determine how double
> taxation is avoided.
A 1040NR is filled out (but not necessarily filed) to calculate the tax due on the taxpayer's US-sourced income as if he/she were not a US person.
That tax is allowable against the resident country's tax on their "foreign tax credit" calculations.
The net foreign tax is then allowed against the US tax on US "foreign tax credit" forms, such as form 1116.
--
Arthur Rubin, AFSP, CRTP
Brea, CA
Alan
Jul 19, 2016, 4:18:21 PM7/19/16
to
On 7/19/16 11:58 AM, Arthur Rubin wrote:
> On Monday, July 18, 2016 at 4:41:35 PM UTC-7, Alan wrote:
>
>> Nothing wrong with the answer other than it overlooks the situation
>> where a US citizen is a resident of the foreign country. That person
>> would file a resident tax return for that country and could avail
>> himself of any foreign tax credits offered to its residents to avoid
>> double taxation. The US would not allow a foreign tax credit on that
>> income as the US credit is only available for foreign taxes paid. In
>> this instance, foreign taxes paid would be reduced by the foreign tax
>> credit on the foreign tax return. Naturally, if a tax treaty existed
>> between the US and that foreign country, it would determine how double
>> taxation is avoided.
>
> It's more complicated than that,if the US citizen has US-sourced income.
>
> A 1040NR is filled out (but not necessarily filed) to calculate the tax due on the taxpayer's US-sourced income as if he/she were not a US person.
>
> That tax is allowable against the resident country's tax on their "foreign tax credit" calculations.
>
> The net foreign tax is then allowed against the US tax on US "foreign tax credit" forms, such as form 1116.
>
> --
> Arthur Rubin, AFSP, CRTP
> Brea, CA
>
Well Arthur, you lost me. A US citizen who has a filing requirement has
> On Monday, July 18, 2016 at 4:41:35 PM UTC-7, Alan wrote:
>
>> Nothing wrong with the answer other than it overlooks the situation
>> where a US citizen is a resident of the foreign country. That person
>> would file a resident tax return for that country and could avail
>> himself of any foreign tax credits offered to its residents to avoid
>> double taxation. The US would not allow a foreign tax credit on that
>> income as the US credit is only available for foreign taxes paid. In
>> this instance, foreign taxes paid would be reduced by the foreign tax
>> credit on the foreign tax return. Naturally, if a tax treaty existed
>> between the US and that foreign country, it would determine how double
>> taxation is avoided.
>
> It's more complicated than that,if the US citizen has US-sourced income.
>
> A 1040NR is filled out (but not necessarily filed) to calculate the tax due on the taxpayer's US-sourced income as if he/she were not a US person.
>
> That tax is allowable against the resident country's tax on their "foreign tax credit" calculations.
>
> The net foreign tax is then allowed against the US tax on US "foreign tax credit" forms, such as form 1116.
>
> --
> Arthur Rubin, AFSP, CRTP
> Brea, CA
>
to file a 1040. The 1040 would include both US and foreign source
income. Why would the US citizen have to complete a 1040NR to calculate
US tax on US source income when it is calculated on the 1040?
tb
Jul 19, 2016, 5:03:55 PM7/19/16
to
On 7/18/2016 at 10:58:12 PM Arthur Rubin wrote:
>
> It's more complicated than that,if the US citizen has US-sourced
> income.
>
> A 1040NR is filled out (but not necessarily filed) to calculate the
> tax due on the taxpayer's US-sourced income as if he/she were not a
> US person.
>
> That tax is allowable against the resident country's tax on their
> "foreign tax credit" calculations.
>
> The net foreign tax is then allowed against the US tax on US "foreign
> tax credit" forms, such as form 1116.
>
> --
> Arthur Rubin, AFSP, CRTP
> Brea, CA
I can't find any mention of what you are saying about Form 1040NR in
>
> It's more complicated than that,if the US citizen has US-sourced
> income.
>
> A 1040NR is filled out (but not necessarily filed) to calculate the
> tax due on the taxpayer's US-sourced income as if he/she were not a
> US person.
>
> That tax is allowable against the resident country's tax on their
> "foreign tax credit" calculations.
>
> The net foreign tax is then allowed against the US tax on US "foreign
> tax credit" forms, such as form 1116.
>
> --
> Arthur Rubin, AFSP, CRTP
> Brea, CA
Publication 54. I guess I am consulting the wrong publication?
--
tb
ira smilovitz
Jul 19, 2016, 11:51:58 PM7/19/16
to
On Tuesday, July 19, 2016 at 5:03:55 PM UTC-4, tb wrote:
> On 7/18/2016 at 10:58:12 PM Arthur Rubin wrote:
>
> >
> > It's more complicated than that,if the US citizen has US-sourced
> > income.
> >
> > A 1040NR is filled out (but not necessarily filed) to calculate the
> > tax due on the taxpayer's US-sourced income as if he/she were not a
> > US person.
> >
> > That tax is allowable against the resident country's tax on their
> > "foreign tax credit" calculations.
> >
> > The net foreign tax is then allowed against the US tax on US "foreign
> > tax credit" forms, such as form 1116.
> >
> > --
> > Arthur Rubin, AFSP, CRTP
> > Brea, CA
>
> I can't find any mention of what you are saying about Form 1040NR in
> Publication 54. I guess I am consulting the wrong publication?
>
> --
> tb
>
> --
I'm convinced that Arthur Rubin is wrong as I explained in the FBAR/8938 thread.
> On 7/18/2016 at 10:58:12 PM Arthur Rubin wrote:
>
> >
> > It's more complicated than that,if the US citizen has US-sourced
> > income.
> >
> > A 1040NR is filled out (but not necessarily filed) to calculate the
> > tax due on the taxpayer's US-sourced income as if he/she were not a
> > US person.
> >
> > That tax is allowable against the resident country's tax on their
> > "foreign tax credit" calculations.
> >
> > The net foreign tax is then allowed against the US tax on US "foreign
> > tax credit" forms, such as form 1116.
> >
> > --
> > Arthur Rubin, AFSP, CRTP
> > Brea, CA
>
> I can't find any mention of what you are saying about Form 1040NR in
> Publication 54. I guess I am consulting the wrong publication?
>
> --
> tb
>
> --
Ira Smilovitz, EA
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