Help Please - Questions about Foreign Tax Credit (Form 1116)

[sese]

Hi,

First time completing Form 1116 - received dividends from an Employee Stock Plan just above >$300.

1) How to find out the source of the Foreign-source Income? (Assuming it's 100% of box 1a because all dividends came from one company stock; and Box 8 is VARIOUS)

2) Confirming that Dividends are "Passive Income"?

3) "Any foreign source qualified dividends or long term capital gains?" (Assuming it's 100% of box 1b?)

4) How come the amount of Tax credits received (~$100) is less than the "Foreign Tax Paid" (Box 7)?  (Received the full Foreign Tax Paid in tax credit from another software - not sure which one is correct cuz I cannot see the actual Form 1116 on Turbotax)

Thanks!

[pk]

@sese  having read through your post ---

(a) if you are filing as single then then the safe harbor amount is $300  ( $600 for a joint filer ) i.e. you can use the simplified method and get the whole amount of credit--- no need to use form 1116.  Form 1116 , while recognizing the whole amount paid , uses a ratio of foreign income to world income to allow a limited amount for the current year and carry backward or forward the rest of the unused / unallowed credit, assuming that the taxpayer has foreign income in those years.

(b) If your actual paid  foreign tax is close to the safe harbor amount for your filing status , it may be more  advantageous to claim ONLY the safe harbor amount  and forego the filling out and limitations of the form 1116.  Also note that the foreign tax credit can only reduce  your  US tax liability i.e. it is not a refundable  credit -- this can also limit how much credit you can get

(c) Interest , dividend , capital gains  etc are all passive income as opposed to wages, self-employment/ sole proprietor business  etc which are active earnings.

(d)Many mutual funds invest in foreign stocks  and will often show the foreign income source as various ( many countries) and is acceptable to the IRS for purposes of computing form 1116 

(e) Most foreign dividends are ordinary dividends -- rarely ( i mean rarely ) will these be qualified dividends ---- your broker should be able to tell you this  and will be noted on form 1099-DIV  / Broker's consolidated  report.

Is there more I can do for you ?

[sese]

Thanks for the detailed and quick response!

Just a couple follow up questions to make sure I understand:

1. I can just claim $300 vs. the actual foreign tax paid to simplify the process?
2. "Also note that the foreign tax credit can only reduce your US tax liability i.e. it is not a refundable credit -- this can also limit how much credit you can get" Does this mean the credit can only reduce US tax liability on the foreign income? (What does "not a refundable credit" mean?)
3. "Most foreign dividends are ordinary dividends --- rarely will be qualified dividends" My Box 1a (Ordinary dividends) and Box 1b (Qualified dividends) are actually the exact same number 
4. Another software just used the full "Foreign Tax Paid" as credits on Form 1116 - I noticed if I change the amount to $0 on TurboTax for "Any foreign source qualified dividends or long term capital gains? - the results become the same. Still unsure where to find this number for this one
5. Maybe a different topic question - I received the dividends from an Employee Stock, why would Box 8 be VARIOUS?

Thanks!