pk
Level 15
Level 15

Deductions & credits

@ilenearg , no you are not confusing -- what I understand from your  post:

 

(a)t you have  Foreign source incomes and   foreign taxes paid for the year 2023.  

(b) these are passive in nature 

(c) your total  foreign taxes paid is a small amount over the safe harbor amount of   US$600

(d)  the income sources are from UK and Australia, both have  Tax treaty with the US and  have "double taxation clause"  --- I am familiar with the US-UK tax treaty  but have to look up that with Australia 

(d) because the  total foreign taxes paid amount is slightly above the  safe harbor limit and  using a form 1116 will indeed result in a lesser  Foreign Tax Credit, there is now a question as to path forward.

 

The general requirement  and assuming that you  & your spouse  ( MFJ filing ) are US persons   ( citizen/ GreenCard ), is that you must recognize all income no matter the source and country i.e. world income.  IRFS gets  copies of all  information returns  ( 1065, K-1 and K-3 etc. ) . Thus  IRS knows  and looks for all  incomes  for federal tax purposes.

However, there is no requirement  for the tax payer to recognize each all taxes paid  to a foreign taxing authority ( either as a deduction or credit  against  US taxes ).  You get to choose what is most advantageous  to your situation.

 

Long story short, you do not have to recognize  all the taxes paid.   You are  quite within the tax laws  to recognize a total of  up to US$600 from the two constituent  K-1/K3s  of US$589 and US$65.  My suggestion would be recognize only one for US$589 and ignore the US$65 -- I say this  because  this way  you are within the perjury jurat   ( the  recognition of only part of the US$65 -- while legal, may -- still requires one to  replace the  US$65 to a different number and  claim to be true ).

 

That is my view.

 

Is there more I can do for you ?