@FrauStachowski wrote:
Oh, this is brilliant, thank you so much!
Because neither of us has an employee sponsored retirement plan we can deduct our IRA contributions. For 2023 I erroneously failed to include the contribution so I'm guessing that now I need to file an amendment for 2023 and include the $7,500 deductible IRA contribution? And for 2024 I will include the IRA contributions as I should.
This leads to another question...can I use any of our FTC carryover from previous years to pay for the penalties? We have FTC carryover in every one of those years, so could I use the 2021 credit carrover to pay for 2020 penalties and the 2022 credit carryover to pay for the 2021 penalties? Thanks again!
FTC, foreign tax credit?
The answer appears to be "no". However, you will find out when you prepare the 2020 and 2021 amended returns.
The foreign tax credit is non-refundable, it flows from form 1116 to schedule 3 line 1. All non-refundable credits are totaled on schedule 3 line 8, and applied to form 1040 line 20. That means it comes after your income tax (line 16) and AMT (line 17), but it comes before your "other taxes" on line 23. The penalty for excess IRA contributions flows from form 5329 to schedule 2 line 8. All your "other taxes" are totaled on schedule 2 line 21 and go to form 1040 line 23.
So the penalty comes after the foreign tax credit, meaning that unusable foreign tax credit amounts won't reduce the IRA penalty.
