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Anne
Anne, Master Tax Preparer
Category: Tax
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Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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How do I use usued foreign tax credit carryover to offset tax

Customer Question

How do I use usued foreign tax credit carryover to offset tax liability for foreign generated income?
Submitted: 2 years ago.
Category: Tax
Expert:  TaxWhisperer replied 2 years ago.

TaxWhisperer :

What software are you using?

Expert:  Lane replied 2 years ago.
Foreign tax credits are thrown into different "buckets" depending on the type of income they are derived from.

There are three primary buckets for individual taxpayers: passive, general limitation and high tax withholding.

Further, foreign tax credits are given a "life" of the current year when generated, two years to carry back and five years to carry forward. If they have not been consumed in the specified time frame, they expire.

The formula that restricts how many foreign tax credits you can consume in any one year is based on a ratio of your total income from outside the US in comparison to your worldwide income including the US.

That's probably why tax whisperer wanted to know which tax software you're using. Go back to his profile and ask the question again (providing that information OR your method of preparation) and do not accept this answer. (Just provide no feedback here at all.

He can help you.

Lane


Customer: replied 2 years ago.

I am a US citizen living in Canada. I have $32,000 foreign tax credit carryover for previous years but for year 2011 since i got corporated, I have US tax liability in the amt of $22,527 for income generated in Canada. What I like to know how to use my foreing tax credit carryover to offset this year's tax liability

Expert:  Lane replied 2 years ago.
Why did you rate my answer badly?

I not only gave you the context for a good answer, but provided a way for you to go back and get the answer from an expert that would more qualified than I to answer the process part of your question?

Not rating my answer at all and letting it time out and then going to tax whisperers profile and asking a more informed question would have let this answer time out and have the effect of giving you a more thorough answer without having to pay for 2 questions.

My apologies for trying to help...


Expert:  Lane replied 2 years ago.
As I told you in the previous answer, foreign tax credits have a life.

(...the current year when generated, two years to carry back and five years to carry forward. If they have not been consumed in the specified time frame, they expire).

What years did your looses occur and what are the amounts?
Expert:  TaxWhisperer replied 2 years ago.

Different expert here:

 

If you tell me what software you are using (or if you are using it by hand), I can answer your original question.

 

 

Expert:  Anne replied 2 years ago.
Hi

Different expert here. You may use your up to $22,527 of your $32,000 carryover if the loss is from "General Category Income" as marked at the very top of the Form 1116, Foreign Tax Credit that you previously filed to generate or carry over the loss.

However, please note that this will NOT be a dollar for dollar credit. It will be prorated based on your foreign income / total income.

I truly hope this information is helpful but please do not rate until you are satisfied. If you want to click on 1 or 2 just click on the continue to work with me button instead. You will then be able to add any other info or respond to what I have posted so far. Rating 3-5 gives me credit and a good rating but you can still converse with me.

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