Foreign bank accounts - where to report foreign tax

[ahk1]

Hi,

I am filing jointly with my wife. Both of us have Indian bank accounts. We get some interest in those accounts and we get taxed in one of those accounts as well.

I went through several questions in this community. This is my understanding-

1. You put interest income in 1099-INT pretending you got that form from foreign bank. Also, you put foreign tax in box 6. Is that correct? What about Foreign tax credit section? Should I use that for taxes deducted on these Indian account? Or should I use box 6 in 1099 INT? It is a bit confusing as I see both of these answers in the community.

2. There are two types of questions that confuses me in Foreign Accounts section of Income.

I check "I had a bank, broker or other financial account in foreign country" but this also looks something that can be checked - "I signed on or had other authority over a bank, broker or other financial account in a foreign country". What to do here?

3. Also, in subsequent pages, it asks about "foreign trust"- "I inherited an interest in a foreign account owned by a foreign trust." Is my foreign bank a foreign trust? Because IF I answer yes to that, it says "You May Need to File Form 3520". I am not sure about this. Our banks are ICICI bank FYI.

[AmyC]

1.a. Bank interest does go on a 1099-INT. 

   b. Box 6 is for foreign tax paid is a good place to enter the income.  It tells the program to give you a foreign tax credit. 

   c. If the amount of all foreign tax is below $300, you take the credit without having to file Form 1116.

   d. Yes, you are using box 6 to get the foreign tax and you might need to go through the foreign tax credit to select a credit, if the total foreign tax paid is over $300. Otherwise, the program will do it all for you.

2. a. One of the most important questions according to the IRS. Check that you have a financial account in a foreign country.

    b. Also important, check that you have authority over your bank account in a foreign country. Both should be marked.

3. a. No, a foreign bank is not a foreign trust.

    b. It does not sound like you run or own the trust, just a beneficiary. Here is the form and instructions for you to verify that it is not needed in your scenario. About Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain For...

You may need to file Form 8936 and/ or FBAR. Here is a comparison of the FATCA (Form 8938) and FBAR requirements. The FBAR is not part of the tax return. It is filed separately. File FBAR through the Financial Crimes Enforcement Network.

[ahk1]

Thanks!

No, I don’t have trust etc, just usual foreign bank account.

i think i checked-

"I had a bank, broker or other financial account in foreign country"

don't remember if i checked - "I signed on or had other authority over a bank, broker or other financial account in a foreign country"

tbh, these questions are overloaded and confusing .

[AmyC]

It is a lot of information that all sounds similar. The important part was to help you determine if you need to file the FATCA or FBAR forms. Depending on your answers, the program goes towards or away from your filing those forms. Be sure to review the comparison of the FATCA (Form 8938) and FBAR so you don't miss filing a form you need.

If you don't need the forms, great. If you do, you can file them. 

If you are concerned, you should be able to get back to those questions by going back to review the income section and then select done. Then there should be a few questions for you. It isn't worth worrying about if your forms are correct.

[ahk1]

thank you. I read the link you shared. I do remember answering reporting income questions. My **bleep**. foreign account balance was way less than $10,000 at any time of the year so I think I am good.

Thanks for your help!

[Murugan6]

I still have a problem. The credit does not showup.  I checked the form 1116 and worksheet. It does not allow me to enter manually. What do I do?

[DaveF1006]

No. Don't enter on the worksheet or form.  Enter through the program itself. Here is some steps that may help. First of all, you will want to be in step by step or easy step (If you have a MAC).  Do not enter these in the forms mode. Here is the procedure.

1. Go to Federal
2. Deductions and credits 
3. Estimate and other taxes paid 
4. Foreign Tax Credit>start or revisit
5. When it asks We just need to check if you have any uncommon situations indicate I paid foreign taxes on income I earned while working in another country. 
6. At some point in the interview, it will ask if you wish to take a deduction or a credit. If you are able to itemize deductions, you may consider taking the deduction.
7. There will be questions in the next screen asking you the description of the Foreign Taxes paid and the amount.
8. If you find that this has no effect on your tax return, you may circle-back and choose you wish to take a credit.
9. Navigate and record the entries that the program asks for and when you reach the page that mentions Foreign Tax Credit Worksheet, this is where you take notice.
10. The first that you will be asked is what category of income is it, you will say Passive income.
11. Next screen will say Country Summary, select add a country 
12. When it says Other Gross Income - XXXX, Here you put in the Gross Amount you earned in that country. 
13. Then you will navigate through the screens until you come to a screen that says Foreign Taxes Paid - XXXX, here is where you record the amount paid under Foreign Taxes.
14. Finish out the section. 

As a FYI, a foreign credit is a non-refundable credit.  This means if you have no tax lability to apply the credit, you may not be able to take it this year. If that is the case, your credit can be carried back one year or carried forward ten years in the future. Also, you may wish to prepare this section if all your other income has been reported as your total income will reflect in the calculation of your credit.

Reach back if you have further questions.

@Murugan6