E: lpanichelli@morrecpa.com / T: (415) 382-5600
Client Portal Login    Subscribe
Novato, CA CPA / Morre & Company, LLP
  • Home
  • About
    • Firm Profile
    • The Morre Team
  • Services
    • Services For Individuals
      • Personal Financial Planning
      • Estate Planning
    • Business Services
      • Small Business Accounting
      • QuickBooks & Xero Services
        • Why QuickBooks & Xero
        • QuickBooks & Xero Setup
        • QuickBooks & Xero Training
        • Xero & QuickAnswers
        • Xero & QuickTuneup
        • QuickBooks & Xero Tips
      • Cash Flow Management
      • Bank Financing
      • Strategic Business Planning
      • Succession Planning
      • New Business Formation
      • Internal Controls
    • Tax Services
      • Tax Preparation
      • Tax Planning
      • Tax Problems
        • IRS Audit Representation
        • Non-Filed Tax Returns
        • Payroll Tax Problems
        • IRS Liens
        • IRS Levies
        • IRS Payment Plan
        • Get Your IRS File
    • Quality Control
    • Make A Payment
  • Tax Center
    • Estimated Tax and Election Information
      • Average Cost Method Election
      • Cancellation of Debt Election
      • Capitalize Investment Expenses Election
      • Alternatives for Estimated Tax Computations
      • Foreign Tax Credit
      • Installment Sale Reporting Election
      • Investment Interest Expense Election
      • Method of Accounting Election
      • Sale of Residence Election
      • Start Up Costs Election
      • Net Operating Loss (NOL) Election
      • Depreciation and Expensing Rules
    • Track Your Refund
    • Tax Due Dates
    • Tax Due Date Reminders
    • Tax Rates
    • IRS Tax Forms and Publications
    • Record Retention Guide
    • State Tax Forms
    • 1040 Tax Calculator
    • Marginal and Effective Tax Rates Calculator
  • Financial Guides
    • Life Events
    • Business Strategies
    • Tax Strategies for Business Owners
    • Tax Strategies for Individuals
    • Investment Strategies
    • Frequently Asked Questions
  • Resources
    • Financial Calculators
    • Client Portal
    • Internet Links
    • On-line Education
    • News and Weather
      • Today's News and Weather
    • Marin Bookkeepers Referral Network
    • Our Newsletter
      • July 2017
      • July 2016
    • Newsletter
      • Previous Newsletters
  • Contact Us
    • Let Us Know!
  • Calculators
  • QuickBooks Tips

Foreign Tax Credit

Call Us: (415) 382-5600
  • broad range of Accounting services
    We help you take charge of your finances to ensure a sound and secure future. Read more
  • Morre & Company, LLP
    Count on us to take the worry, leaving you to do what you do best. Read more
  • Secure client portal
    Providing the support you deserve.
  • Small enough
    As a valued client, you get a secure, password-protected portal. Read more

Newsletter

Our monthly newsletter, financial guides, and interactive calculators help you stay informed about your finances.

Newsletter

Send Us a File

Use our convenient SecureSend page to securely deliver a file directly to a member of our firm.

Send Us a File

Our Services

We offer a broad range of services for business owners, executives and independent professionals. Please call us for a free initial consultation.

Reports

Financial Guides

Click on any of the report categories listed below to find practical, unbiased information to help you reach your financial goals.

Guides

Featured Articles

Foreign Tax Credit

Foreign Tax Credit


The amount of the foreign tax a taxpayer can use as a credit to offset his or her U.S. tax liability is limited based on the following formula. The U.S. tax liability is regular tax only (i.e., does not include Alternative Minimum Tax or Self Employment tax) reduced by certain nonrefundable personal credits. However, for tax years 2000?2008, there was no reduction for any of the nonrefundable personal credits.  
  
 U.S. tax paid X Foreign Source Income / Total Income
 
As an example, if your income was $200,000 and it included $1,000 of foreign source income from a mutual fund that withheld $200 of foreign tax. The your maximum credit would be (if your U.S. tax were $24,000). 
 
$24,000 X $1,000 / $200,000 = $120
  
The foreign tax credit may not exceed the portion of U.S. tax attributable to income from foreign sources. The limitation is calculated on Form 1116. If the foreign taxes paid or accrued in the current year exceed the limitation, the excess taxes are first carried back to the preceding year and then forward to the 10 succeeding years. There is no election to forego the carry back period. The excess taxes are considered paid in the year to which they are carried and can be used only when the overall limitation for that year exceeds the foreign taxes actually paid or accrued.
 
An individual with (1) no more than $300 ($600 for married filing jointly) of creditable foreign taxes, and (2) only qualified passive foreign income, may elect to be exempt from the foreign tax credit limitation. Qualified passive income generally includes investment income such as dividends, interest, rents, royalties, and sale or exchange gains. The election is made by simply claiming the foreign tax credit on the appropriate line of Form 1040 instead of filing Form 1116.  Any unused credit cannot be carried back or forward if this election is made.
  
Making the election should be considered when: 
  • The cost to amend the prior year return (one year carry back) is greater than the lost credits due to the election.
  • The current year credit is reduced by the formula above by more than the credits lost due to the election.
     
  • The amount of foreign tax lost is so small it does not justify the extra cost of preparing Form 1116.
  •  

    Please call us if you have any questions about this election.

     

     

    Morre & Company, LLP

    Certified Public Accountants
    1682 Novato Blvd, Suite 300
    Novato, CA 94947
    Phone: (415) 382-5600

    Toll Free: (888) 414-7104
    Your Partners in Financial Success!
    Morre & Company, LLP 1682 Novato Blvd, Suite 300 Novato, CA  94947
    Phone: (415) 382-5600 | Fax: (415) 382-5605
    lpanichelli@morrecpa.com
    Login   Search   Site Map   Privacy Policy   Disclaimer