pk
Level 15
Level 15

Deductions & credits

@sharan0711 , 

(a) Which country --  you may need  Tax Treaty  clause  " mitigation of double taxation ) ?

(b) assuming that you are a US person ( citizen/GreenCard/Resident for Tax Purposes ).

(c)  Enter  Interest income just as if  it was domestic --- Under "Personal Income" or "Wages and Income" tab, select "I will choose what I work on ".  This should then open a screen showing all the different types of incomes.

(d) Select the  box  that says  Interest income, then select "I will type in myself"

(e) Now enter the  entity name  that gave you the interest   -- ignore  EIN if it asks for it   ( in my case it does not enforce this )

(f)  enter the interest amount.

(g) you should see your  tax liability go up.

 When you are all done with your incomes , go to "Deductions & Credits " tab and again select "I will choose what I work on ".

(h) Now from the list of deductions/ Credits select " Foreign Tax Credit " , near the bottom of the list.

(i)  Now TurboTax will help you  fill out form 1116 , after you choose / select  "Credit" instead of deduction.  Here  your Foreign Source income is the interest income, and foreign Tax is the  taxes you paid to  the country concerned.  Note that ( at least for India ) TDS is only an estimated  tax. This means that if you use this as the "Foreign Taxes  Paid ", you may have to file an amended return once your ITR has been filed and accepted.

(j)  Also note that while US recognizes the full amount of taxes paid to a Foreign taxing authority, the  allowable  Foreign Tax Credit for the  tax year under consideration is the lesser of  actual paid to Foreign Govt. and  that levied by the US on the same doubly taxed income.  Thus you will never get more than the US tax  ( this is  allocated based on a ratio of Foreign Source income to your world income ) -- the rest is banked.

 

Does this answer your query ?

 

Is there more I can do for you ?

 

pk