Foreign Tax Credit

[splasatrik]

I am US citizen retired and I live in Portugal (full time resident).  My income is my US Social Security and a small amount of dividends and interest.  I am required here to pay a 10% tax only on my US Social Security income (Approx. $3000). I have been told that I can deduct the tax that I pay here from my US Taxes (There is a tax treaty).  I have only seen how to deduct foreign taxes paid on foreign income.  I am using the CD download of Turbotax Deluxe.  Any help is greatly appreciated.

Thanks

[rogge1722]

Are there any foreign taxes paid on the dividends or interest?  If so, is the foreign tax paid greater or lesser than the foreign tax on the Social Security.  All this affects the screen presentation during the foreign tax credit interview.

[splasatrik]

no, there is no foreign tax on the internet or dividends. the only foreign tax is approximately $3,000 on my US social security.

[MarilynG1]

You need to report your Social Security income in the Wages & Income section.

If you pay no Foreign Tax on your Dividends or Interest, in the Foreign Tax Credit section, continue past the screens asking about that.

You will come to a screen asking if you paid Foreign Tax on other income, and listing several types of income to choose from.  You can choose 'General Income' and Continue.  You will enter the amount of income that was taxed. 

Continue, and you will be asked the country you paid the tax to, and the amount of tax you paid. Continue to the end of the section. 

Here's more info on Claiming the Foreign Tax Credit. 

@splasatrik 

[splasatrik]

Thank you for the reply. 

"You can choose 'General Income' and Continue. You will enter the amount of income that was taxed."

Just to be clear, I should choose "General category income" and not "Income re-sourced by Treaty"

Also, I'm still not comfortable with the data I'm entering with regard to the prompts from TurboTax.

When I create the Foreign Tax Computation Worksheet for Portugal I'm asked to enter amounts for other gross income I received from WITHIN Portugal. My concern is that this income is not from WITHIN Portugal, but it's US Social Security income that is taxed in Portugal.  Nowhere do I see anywhere to enter the amount of my US income that I need to reclassify.

Am I missing something?

[pk]

@splasatrik  having read through this thread and  re-familiarizing myself with the Portugal treaty  and the technical explanation thereof,   I don't understand the reluctance to  " resource "the  Social Security benefits  that are being taxed by both Portugal and US.   Under article 20(b) Portugal is allowed  to tax Social Security Benefits by virtue of the recipient being a US  Person (citizen/ GreenCard ) while residing in Portugal .  Thus applying article 25 para 1, allows  a US person  whom is a resident of  Portugal  to mitigate the effects of double taxation. 

Only way to achieve  this  foreign tax credit is to "resource" the income by treaty and show this as foreign income on form 1116.

The only issue I see here is that because of the way US taxes Social Security ( amount taxable being controlled by  "all other income") , one may be taxed by Portugal at a flat rate  but not have any of the Social Security Benefit being taxable  in the USA.   I think there is language in the treaty to cover this situation ( equal treatment and non -discrimination ).

Does that help ?    Is there more I can do for you ?