Tax

Have a tax question? Ask a tax Expert

Ask an Expert,
Get an Answer ASAP!

This answer was rated:

Client (US resident) with foreign salary and taxes paid in…

Client (US resident) with foreign...
Client (US resident) with foreign salary and taxes paid in foreign currency - Part II of 1116 form for some reason adds taxes paid only in US $ (line "o" through "r") - it does not take taxes paid in foreign currency (lines "k" through "n"). I do not understand why a person would not get a credit for taxes paid (obviously from foreign salary taxes would be withheld in foreign currency - and why would the form 1116 contains lines that don't "participate" in calculations. Read 1116 instruction - did not help.
Show More
Show Less
Ask Your Own Tax Question
Answered in 6 minutes by:
10/4/2017
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 4,652
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
Verified

Hello. Thank you for choosing this Q&A service for assistance. My name is Angela. I will be assisting you.

In order to deduct the foreign taxes paid, the currency must be converted over to US dollars. SEE BELOW:

-----------------------------

For U.S. tax-reporting purposes, you must convert any foreign currency you earn into U.S. dollar equivalents. Most people use the yearly average exchange rate between the U.S. dollar and the foreign currency they receive to calculate this. The IRS lists a few yearly exchange rates on the Yearly Average Currency Exchange Rates Translating Foreign Currency into U.S. Dollars page of its website.

Note that there is no “official” exchange rate you are obliged to use for this calculation. Any posted, “consistently used” exchange rate—like those utilized by major banks—is acceptable.

REFERENCE SOURCE:

https://www.nolo.com/legal-encyclopedia/how-i-value-foreign-income-us-tax-purposes.html

Link to Yearly average Currency Exchange Rates Translating Currency into U.S. Dollars Page:

https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates

If the above information clarifies matters for you, I ask that you please take the time to scroll to the top of the page and select 3 or more stars to positively rate my response so that I can receive credit for assisting you. A 5 star rating is greatly appreciated. Thank you in advance.

Ask Your Own Tax Question
Customer reply replied 7 months ago
You can refer me to somebody else - as you again answer generically and things I do know

I will opt out and release the question back into the queue.

Ask Your Own Tax Question
Customer reply replied 7 months ago
ok
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,860
Experience: Taxes, Immigration, Labor Relations
Verified

When we calculate a foreign tax credit - that credit is limited by the US tax liability on that foreign income.

Just an illustration example - assuming the same income is taxed in the US and in a foreign country

If US tax liability for instance $5000, but a foreign tax liability is $8000 on the SAME income - your US foreign tax credit will be ONLY $5000 - that effectively eliminates US tax liability on THAT income.

If however US tax liability for instance $8000, but a foreign tax liability is $5000 on the SAME income - your US foreign tax credit will still be $5000 - but an additional US tax liability is remaining $3000 - that effectively eliminates double taxation of the same income - but will not fully eliminate US tax liability on THAT income.

All calculations are done on form 1116 - thus if you have income from foreign sources and income from US sources - your US tax liability is prorated - and a foreign tax credit is calculated only on income from foreign sources.

Unused portion of the foreign tax credit may be carried forward to following years.

In some situations more beneficial could be to claim a deduction of the full amount of foreign taxes instead of calculating a foreign tax credit - that option might be very valuable if you are a resident of the state with high state income tax.

Let me know if you need any clarification this matter.

Ask Your Own Tax Question
Customer reply replied 7 months ago
I do understand all that you said - however when i input the data - this happens: Part II of 1116 form for some reason adds taxes paid only in US $ (line "o" through "r") - it does not take taxes paid in foreign currency (lines "k" through "n"). I do not understand why a person would not get a credit for taxes paid (obviously from foreign salary taxes would be withheld in foreign currency - and why would the form 1116 contains lines that don't "participate" in calculations
Basically, system does not take as a credit taxes paid in foreign currency - only PAID in US dollars

If you upload the form - I will take a look more precisely.

But all amounts paid in foreign currency must be converted into USD - and all calculations are done in USD

All lines are generally participating in calculations - but which amount to use is based on conditions - so if you follow constrictions - you woudl see these conditions.

If you are likely using a tax preparation software - there are some worksheets and comparison in the background but that doesn't means these amounts are not used.

But again - just upload the form - be sure to remove all personal information - and I will be more specific to your calculations.

Ask Your Own Tax Question
Customer reply replied 7 months ago
It's generic 1116 form - if you re-read my initial question you'll see what i mean

I do not see any amounts... is that correct?

Ask Your Own Tax Question
Customer reply replied 7 months ago
When i enter amounts in section pertianing to foreign currency they do not flow anywhere
Customer reply replied 7 months ago
please, re-read my original question

I am not clear why you said - it does not take taxes paid in foreign currency (lines "k" through "n").

I feel that is misleading statement...

According to instructions - Generally, you must enter in Part II the amount of foreign taxes, in both the foreign currency denomination(s) and as converted into U.S. dollars, that relate to the category of income checked above Part I.

So these are SAME amounts - just "o" through "r" are represented in USD - but "k" through "n" - in foreign currency - but these are SAME amounts - not different.

Ask Your Own Tax Question
Customer reply replied 7 months ago
i need just to duplicate entry - first in foreign currency and then in USD? As they say "paid in USD" and they were not paid in USD

Correct -

You will list amounts in foreign currency as taxes were paid.

Then - convert into USD based on conversion rates at the time taxes were paid.

Then - will continue all calculations in USD.

"paid in USD" - you are taking too literally...

Foreign taxes paid or accrued - depending which method you are using - most likely PAID.

Then - same amount is expressed "In foreign currency" AND "In U.S. dollars"

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,860
Experience: Taxes, Immigration, Labor Relations
Verified
Lev and 87 other Tax Specialists are ready to help you
Ask your own question now
Customer reply replied 7 months ago
Got it, thanks
Was this answer helpful?
Ask Lev Your Own Question
Lev
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,860
32,860 Satisfied Customers
Experience: Taxes, Immigration, Labor Relations

Lev is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,338 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,495 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

PhillipsEsq.

PhillipsEsq.

Attorney-at-Law

59 satisfied customers

B.A., M.B.A, J.D.

Robin D.

Robin D.

Senior Tax Advisor 4

15,272 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,655 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

< Previous | Next >

Related Tax Questions
Tax question: US citizen living in Finland, with income
Tax question: US citizen living in Finland, with income produced only in Finland and taxed in Finland needs to file US return for 2017. Which is better to use for filing, please discuss the pro's and … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
15,272 satisfied customers
I have foreign earned income that is being reported on one 7
Hello...I have foreign earned income that is being reported on one 7 within my tax return. I have been told by a mortgage lender that this income should be reported on line 21 and supported by Form 25… read more
Dr. Fiona Chen
Dr. Fiona Chen
President
Ph.D.
1,027 satisfied customers
Individual on an o-1 visa with no US income or presence in a
individual on an o-1 visa with no US income or presence in a year, do they need to file a return?… read more
Tax.appeal.168
Tax.appeal.168
Tax Accountant
4,652 satisfied customers
The federal government gives you a tax credit for foreign
The federal government gives you a tax credit for foreign taxes paid in another country Does New York State offer a tax credit for the same If yes , where would it be found, on what form… read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,129 satisfied customers
Lev. I have a question regarding line 2 of Form 1116 for
Hi Lev. I have a question regarding line 2 of Form 1116 for expenses definitely related to passive rental income. On a year in which the depreciation and other expenses exceed the total income - and t… read more
Lev
Lev
Tax Advisor
32,860 satisfied customers
I am looking at form 3520 and a foreign individual gave me a
Hi, I am looking at form 3520 and a foreign individual gave me a gift, … read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,129 satisfied customers
May I have a question of foreign tax credit calculation,
May I have a question of foreign tax credit calculation, pls?If a individual has $20,000 foreign general income, $500 foreign passive (interest) income and $1000 foreign capital loss. The foreign tax … read more
Dr Arthur Rubin
Dr Arthur Rubin
Doctoral Degree
24 satisfied customers
How to report foreign income on which Tax has been withheld
How to report foreign income on which Tax has been withheld in foreign country and tax return in the country is filed as per their rules. … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
15,272 satisfied customers
I am having trouble understanding foreign tax credits,
I am having trouble understanding foreign tax credits, Hopefully in simple language you can help me understand it. I have a carryforward foreign tax credit from a sale of property in Israel. I paid th… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
15,272 satisfied customers
Are beneficiaries required to report K-1 credits on the Form
Are beneficiaries required to report K-1 credits on the Form 1040, or is at our discretion? I'm using TAXACT software. The Form 1041 K-1 Final Year Deductions only shows credits on Line 11 A and C. Th… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
My question relates to avoiding the double taxation related
My question relates to avoiding the double taxation related to sale of stock options reported on 1099-B and the W-2 !2b "V" box amount. I understand that I need to adjust the cost basis for the sales … read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
I have a tax liability with the State of Wisconsin. Can the
I have a tax liability with the State of Wisconsin. … read more
Mark Anderson
Mark Anderson
Attorney
Doctoral Degree
10 satisfied customers
Taxes Where doe do you report foreign source income from a
TaxesWhere doe do you report foreign source income from a 1099-div There are amounts in boxes 1a-6 that I already entered in Schedule B and the dividend income statement. I entered the Foreign tax pai… read more
Lev
Lev
Tax Advisor
32,860 satisfied customers
Section 962 election A US individual owns a foreign
Section 962 election A US individual owns a foreign corporation which generates GILTI income. Can the US individual make a section 962 election (to be taxed at corporate rates) and therefore pay only … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
15,272 satisfied customers
Continuing our discussion on foreign tax credits. I have
Continuing our discussion on foreign tax credits. I have land in a foreign country, Israel and I intend to sell it and I will be heavily taxed on it and will incur a foreign tax. I will have to report… read more
Lev
Lev
Tax Advisor
32,860 satisfied customers
Foreign Corporation / US Tax Issue: Say I am a US person
Foreign Corporation / US Tax Issue:Say I am a US person living in New Zealand exclusively as of a few years ago, with no physical presence in the US. I operate as an independent contractor consultant … read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,129 satisfied customers
My question is: Is the foreign tax credit 100% Offset to the
Hi, my question is: Is the foreign tax credit 100% Offset to the Alternative Minimum Tax, if there are only foreign income? … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
15,272 satisfied customers
What are the forms for reporting Rental Income to the IRS on
What are the forms for reporting Rental Income to the IRS on foreign properties - we collect each month? Is this filed separately from our personal returns?… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,244 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x