@RJG0307 , so you are saying that you earned dividends on a stock/ bond that was foreign and therefore taxed by the local tax admin --yes? Was this through a US broker, foreign country broker or direct investment by you ( foreign stock in a foreign exchange ). Which country?
While I await your answer(s) , generally (a) foreign dividends are rarely qualified dividends for US tax purposes ; (b) you report these foreign dividends just as if they were US based ordinary dividends ; (c) if the total amount of foreign tax is equal / under the safe harbor amount ( $300 per filer ), then you do not need to file a form 1116 , and you will get dollar for dollar of foreign tax credit reducing your US tax liability.
Please answer my questions -- I will circle back after I hear from you
PK:
I was just inquiring regarding a foreign dividend tax I paid, and wondering it I would get a credit on my tax return. After speaking to a Turbo Tax expert., it turns out that I will be carrying the credit until I can apply it to future passive income.
@RJG0307 , Great news .
Hope you have also been told that sometimes it is better ( in the longer term ) to recognize a smaller foreign tax to be able to use the safe harbor than recognizing the full amount and having to use the form 1116 limitations. For example ,
1. US income 120,000, Foreign dividend income 10,000
2. Filing MFJ
3. Foreign Tax on dividend 1000
This would result in foreign tax credit of US$600 using safe harbor i.e. recognizing only $600 as foreign taxes paid. However if you you recognize the whole foreign taxes paid as $1000, the allowable may be be less than 10,000 / 120,000 times the total tax on world income i.e. 7.6% of the tax on 130,000 approx. Thus while the foreign tax is recognized in full, the allowable amount for the current year will be limited and the rest of the credit may be carried forward ( as long there is foreign income in the forward years and again limited by the foreign income to world income ratio.
That is my three cents.