Where to enter foreign pension income and foreign tax credits?

[ChasinSF]

Yes mine also is direct deposit in the U.S. Up until October they arrived at the end of the month, but my Nov one did not get deposited until 12/2 and my Dec one 1/2/25. I don't think it makes any difference as you can just elect to include it in your 2024 tax year. I believe it is more related to when it was sent and not when you actually receive it. If it comes in 2025 you can always declare it in FY25 and then the amount list on the NR4 will match again as the Dec 25 one won't arrive until Jan 26.

[TexasTea]

Thanks @ChasinSF -- it's good to know I'm not the only one who experienced that change with OTPP!  My first inclination was to include the Dec payment in 2024 income despite it's Jan 2025 arrival.  I figured no one at the IRS would ever ask or care about me choosing to report that income early.  I even posted in this forum about it, hoping for someone to say "yes, do it, no problem!"   But all I got was one response confirming that the right way to do it is to shift that December payment into 2025...  so I've been stewing about that for a while and still haven't decided what I'm going to do.  🤔

[ChasinSF]

@TexasTea I get royalty checks here in the US and sometimes they come in the next tax year for sales recorded in the prior year, so I just count them in the prior year since they are paying for sales that occurred then not in the next year. I would just ask an accountant what is the best course of action but really, I don't think the IRS cares when you report it as long as you report it.

[AmyC]

As a cash basis taxpayer, the income is declared when you actually receive the income. See About Publication 538, Accounting Periods and Methods. 

@TexasTea not sure what you are, cash or other. Thus, the pub to help.

[TexasTea]

Thanks @AmyC for taking the time to respond.  I'm a cash basis filer, and I had previously reviewed the docs you referenced and concluded, like you, that the Jan 2 deposit should be reported as 2025 income.

I was hoping there might be some kind of exception in the context of foreign income, partly because a cash basis filer is allowed to elect the accrual method for foreign tax credits.  (It's a check box on Form 1116, based on section 905 of the tax code, that says foreign tax credits may "at the option of the taxpayer and irrespective of the method of accounting employed in keeping his books, be taken in the year in which the taxes of the foreign country or the possession of the United States accrued".)     I thought perhaps if I made that election on Form 1116 that it might also mean that I could report the matching foreign income on Form 1116 on an accrual basis.   But since my prior post I did a  deep dive on that issue and concluded that it is only the foreign tax, and not the foreign income, for which I could elect accrual.

For 2024, electing to report the foreign tax on an accrual basis, while reporting the income on a cash basis, would increase my foreign tax credit by several hundred dollars (because I would be reporting 11 months of pension income, but 12 months of foreign tax accrual).  It's tempting to do that, although I'm reluctant partly because once I make that election I'm locked in to doing it in all future tax years, and partly because the savings in 2024 will eventually be offset when the timing difference of 2024 is resolved.  So the only true savings will be the time-value-of-money until that happens.

So I've accepted that I need to report 11 months of pension income in 2024, but I'm still undecided about which choice I'll make regarding the accrual of the taxes.

[AmyC]

Since you are on the fence, choose the method that will be easiest to keep track of and explain, if the IRS asks questions.  

I want to urge you to create a financial notebook that is kept separate from your tax return. Keep it safe and each year, add your year-end statements from all your financial accounts plus a copy of your W2’s, your  carryover information, and proof of your basis in your various investments. You must keep tax records  from the time you purchase until sold/ loss used plus 3 years. It is very easy to lose track of disallowed losses, carryforwards,  and basis. This can be a digital or paper notebook. This will help track and prove whichever method you pick.