which foreign percentage do I use?

[Don-TT]

Turbo Tax tells me I have $x of "Total income" (Div + Cap Gains) reported for a given fund. I can match that number on the 1099. (I have this for multiple funds actually, but same question for each).

That fund has an amount under "Foreign Taxes paid" (box 7).

I then have to fill in for Turbo Tax, "How much of this income was from foreign countries?"

I know to use the percentages reported by the FI under "Reporting for foreign taxes paid", or some similar language. There are 2 percentages however, "Foreign source income percentage %" and "Foreign source qualified dividend %"

Much of the time the two percentages are the same, but sometimes they are not. I have filled out the calculation always using "Foreign source income %", but I just thought - since "Total income" for that fund consists of cap gains and dividends, if the percentages are different should I apply the "Foreign source income percentage %" to the Cap Gains amount, and "Foreign source qualified dividend %" to the Div amount? Or should I do something different? Not sure why they give me 2 percentages if I don't do it this way.

Thanks!

[rogge1722]

The capital gains in the 1099-DIV box 2a is only used if any of it is foreign sourced.  The broker’s supplemental info will disclose this.  If there is no disclosure, then the amount is domestic only and is ignored for any foreign transactions.

With regard to the screen with the header “foreign source income”, the amount quoted is the entire amount of the 1099-DIV and at this point TT considers that amount as worldwide.  TT wants the amount that is foreign sourced and that is contained in box 1a “ordinary dividends.”   The broker uses the phrase “foreign source income percentage.”  They are referring to the percentage of box 1a that is foreign sourced and that is the amount you insert into the box. It could have been more precisely expressed.

Less precise is the phrase “foreign source qualified dividend percent.”  It might be referring to box 1a or  it could be referring to box 1b which contains the worldwide qualified dividends.  The  broker’s supplemental info might  have some clarification on the interpretation.  Later in the interview, you may be asked for that foreign qualified amount.  It will be necessary to know exactly the source of that percentage.  If necessary, visit the broker’s website for clarification.

[Don-TT]

Right, it is not explained well - anywhere. Since the 1099-DIV "Total income", as TT calls it, is both dividends and cap gains, wouldn't it make sense that "Foreign source qualified dividend %" is used for the portion of total income that is in 1b, and that "Foreign source income percentage %" is used for that portion of "total income" that is Cap gains, ie in box 2a? 

[rogge1722]

I’m not sure if that interpretation is correct or not.  I know Vanguard states explicitly that “foreign source income” is a percentage of box 1a  and the "foreign qualified amount" is also a percentage of box  1a. 

[Don-TT]

Thanks for the tip, I went to Vanguard web site and I see the page explaining the 2 numbers - they say "To calculate the foreign source income"....(multiply percentage by 1a). Then they say "To calculate the Qualified Foreign Dividend Income"....(multiply percentage by 1a)

So Question #1 - TT asks for "How much of this income was from foreign countries?". If that is just the "Foreign source income percentage %" times 1a, why is the second percentage, "Foreign source qualified dividend %", even offered? (Unless it is used in some scenario I am not presented with in my tax calculations?)

Question #2 - to answer the TT question "How much of this income was from foreign countries?", is the answer "Foreign source income percentage %" x 1a?

[rogge1722]

This is what box 1a “ordinary dividends” at most consists of:

(a) foreign source unqualified dividends

(b) foreign source qualified dividends

(c) domestic unqualified dividends

(d) domestic qualified dividends

When the phrase “foreign dividends is used”, it means the foreign ordinary dividends and that  includes a+b.  The percentage of foreign ordinary dividends of 1a  is how much a+b is a percentage of the entire amount.  That amount is what TT wants  for “foreign source income”. 

Later you may be asked for the foreign sourced qualified dividends.  That amount is the percentage of (b) is of the entire amount.