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Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Its it is regarding foreign tax credits -- carrying over. I

Customer Question

hi. its it is regarding foreign tax credits -- carrying over. I have about $13000 that I was not able to use for my 2014 filing. How does that get factored into my 2015 filing?
JA: Thanks. Can you give me any more details about your issue?
Customer: I lived in Australia from Jan 2014 to end of June 2015 and earned a salary there in AU$ for my company. 2014 U.S. tax filing left $13000 worth of foregin tax credit carry over I was told. For 2015, my total earnings in Australia were (converted to US$) $77170 with about $25,529 withheld and paid to Australia in taxes
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Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
are you coming back to me on chat here?
Expert:  Lev replied 1 year ago.

Foreign tax credits are carried over to the following year - and are treated as if taxes were paid in that tax year for calculating the credit.
So on your 2015 tax return you woudl calculate a foreign tax credit in similar manner as you did in 2014.

You will use foreign taxes paid in 2015 and add the amount of foreign tax credits are carried over.

Customer: replied 1 year ago.
Ok. So, if based on my 2015 income, the foreign tax credit (for 2015) comes out to be about $17,000, I would take that amount and add the carry over of $13,000 making a total of $30,000 for 2015?
Expert:  Lev replied 1 year ago.

If your 2015 foreign tax credit is $17,000 - that means
- you may NOT use any 2014 foreign tax credit carried over and
- you will have additional 2015 foreign tax credit carried over

Customer: replied 1 year ago.
Ok thanks. so what happens to the credits next year (tax filing for 2016 year) since I have repatriated and will have earned all of my income for 2016 in the U.S.? Can the credits still be used?
Expert:  Lev replied 1 year ago.

If you cannot claim a credit for the full amount of qualified foreign income taxes you paid or accrued in the year, you are allowed a carryback and/or carryover of the unused foreign income tax. You can carry back for one year and then carry forward for 10 years the unused foreign tax.
After 10 years - all credits are lost.

Customer: replied 1 year ago.
Ok. So just to be clear: In my case, I worked part of 2015 in Australia, the rest back here in the U.S. My 2015 foreign tax credit max comes out to about $17,000. There is a carry over amount of $13,000 from 2014. So if my only income for the tax year 2016 comes from money earned in the United States, can I use any of the foreign tax credit carry over amounts against 2016 tax liability incurred?
Expert:  Lev replied 1 year ago.

Foreign tax credit may be USED only to offset US taxed on foreign income.
Unused amount are carried to other years.

Expert:  Lev replied 1 year ago.

If you will not have any foreign income in coming years - chances are that you will not be able to use that unused foreign tax credit carried over.

You can choose to take the amount of any qualified foreign taxes paid during the year as a foreign tax credit or as an itemized deduction. To choose the deduction, you must itemize deductions on schedule A.

To choose the foreign tax credit you generally must complete form 1116 and attach it to your tax return.

You must choose either the foreign tax credit or itemized deduction for all foreign taxes paid or accrued during the year. This is an annual choice.

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