Applying Foreign Tax Credit to Passive Income

Forum|Forum|4 years ago
March 3, 2022
8 replies
53 views

Hello-

I'd like to connect with a TurboTax export to help answer two specific questions. There is an expert service available but it appears to kick in only after starting an online tax return. For reasons I'll skip here, I need to use the desktop version. So, I'm not sure how to proceed.

Issue #1

I need the service of an accountant familiar with applying a foreign tax credit to passive income. My case is very simple. I'm dual Canadian/US citizen living in Canada. I have dividend income and I need to fill out a Form 1116 for passive income to apply the credit. I currently have a small bit owing to the IRS, and cannot figure out what is required to drive this to zero.

Issue #2

I have RRSP income this year but should not be taxed on the amount invested because I've already paid taxes on this amount (I'm self-employed, and self-employed people cannot deduct income with an RRSP when living abroad for some reason). I need assistance with claiming the gain as income.

Thanks for any guidance.

MarilynG

Level 15

If you have Dividend Income to report but did not receive a 1099-Div enter it 'as if' you had a 1099-Div.

Any foreign tax paid on this income (you enter the tax amount) will be transferred to the Foreign Tax Credit section for you. All you need to do is enter the amount of the passive income in the Foreign Tax Credit section related to the tax.

Click this link for steps on Reporting Dividend Income without 1099-Div.

To report Canadian RRSP Income, go to Wages & Income > Retirement Plans and Social Security > Canadian Registered Pension Income (screenshot).

To claim a credit for taxes paid on your RRSP, you will need to enter both the Income Amount/Taxes Paid in the Foreign Tax Credit section (general income category).

This link has info on Reporting Canadian Pension Income.

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pcmoanAuthor

Level 3

Much appreciate the response.

Unfortunately, I'm still not clear on how to apply the FTC to my dividend to get my tax bill to zero. To simplify this exercise, I deleted all dividends and brought the amount owed back to zero, then added a single dividend listed on my 1099-DIV. This gave me a non-zero amount for Federal Tax Due. Assume I owe $100. My objective is to reduce the $100 to $0 in TurboTax using a FTC for passive income.

To this end, I navigated to Deductions->Foreign Taxes and created a Foreign Tax Credit Computation Worksheet for "Passive Income" and stepped through all screens that followed, trying to identify where I need to enter Canadian taxes paid on my passive income to offset the $100 TurboTax is currently saying I owe.

The specific screens are listed below. I've experiment with each to see how they affect the tax bill, and there is no field I can see that I can use to offset the bill.

Personal->Deductions & Credits
Choose the Income Type (Passive income)
Country Summary (Canada)
Any foreign source qualified dividend
- Foreign qualified dividends and l.t. capital gains (_blank_)
Taxes Paid or Accrued (Paid)
Other Deductions Not Definitely Related
- First Deduction (_blank)
- Second Deduction (_blank)
Investment Interest
- Other Interest Expense (_blank_)
Trade or Business Interest
- Trade of Business Interest Expense (_blank)
Passive Interest
- Passive Interest Expense (_blank_)
Country of Residence (Canada)
Reduction in Foreign Taxes
- Reduction in Taxes (_blank_)
- Description (_blank_)
High Tax Kickout
1. Taxes reclassified under high tax kickout (_blank_)
Foreign Tax Credit Carryovers
- Year 2014 thru 2020 shows Foreign Taxes paid and Amount Used.
- Not clear why TT is showing me this..
- Figures pertain to taxes paid as a self employed consultant.
AMT Foreign Tax Credit Carryovers
- Same table as above
Gross Income Adjustment
- Gross Income Adjustment (_blank_)
Miscellaneous Items - Answered No