# Line to report foreign taxes paid?



## byline (Dec 5, 2011)

My husband thinks there should be a line on the U.S. tax return for us to note taxes paid in our country of residence. I certainly don't see anything like that. Am I missing something?


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## BBCWatcher (Dec 28, 2012)

byline said:


> Am I missing something?


Yes: 2015 IRS Form 1040 line 48, and IRS Form 1116 if applicable.

Please note that you cannot take the Foreign Tax Credit on any income that was excluded via the Foreign Earned Income Exclusion or Foreign Housing Exclusion (IRS Form 2555 or 2555-EZ). Also please note that not all foreign taxes are creditable (or deductible).

All income figures you report to the IRS should be gross (pre-tax), worldwide, and inclusive of all forms (cash and non-cash), unless otherwise instructed. Occasionally foreign tax figures can pop through in other places, but line 48 is the primary way they do, if they do.


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## Bevdeforges (Nov 16, 2007)

If you haven't already, you should take a look at IRS Publication 54 https://www.irs.gov/uac/About-Publication-54
Cheers,
Bev


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## byline (Dec 5, 2011)

OK, thanks for this. Looking at Line 48 from last year's From 1040 (which was prepared for me by an HR Block tax preparer), I don't see anything listed, even though I sent him the amount in Canadian taxes owing, which I paid ($104.94 CAD). Basically I have a part-time job, through which taxes are deducted, and I also have my own freelance writing business. My small income from my freelance work is what generates the taxes owing. Looking at last year's Form 1116, it appears to me that he listed only the taxes that were deducted from income from my part-time job.

I'm trying to do my own tax return this year, using one of the free online services. Ugh, I am really not looking forward to it. Given how small my income is ($10,363 CAD), it seems ridiculous that it should be this complicated.


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## Bevdeforges (Nov 16, 2007)

On what basis are you filing US income taxes? Married, filing jointly or married, filing separately? 

If all your income is from your part-time job and your freelance writing, you're definitely eligible for the FEIE, where you just exclude the whole amount (as long as it's under $100,000 or so, which it sounds like it is) and don't worry about claiming back Canadian taxes paid.

If you're filing jointly with your husband, it will depend on his sources of income and a few other factors. But if you're filing on your own, it might be easier to go that way and avoid all the tax credit issues. Technically speaking, you're only allowed the tax credit for income taxes paid during the tax year (which would be the amounts withheld from your part-time job), not necessarily the amount you ultimately paid for that tax year (say, if you made the actual payment in the next calendar year) - though that's not always how the tax credit is taken.
Cheers,
Bev


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## byline (Dec 5, 2011)

I'm married, filing separately. My husband is Canadian. So it sounds like my tax preparer did this correctly last year. Thanks, Bev! That gives me a bit more confidence going forward.


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## BBCWatcher (Dec 28, 2012)

Right. Look at your previous tax return to see if there's a Form 2555 or 2555-EZ. As I mentioned upthread, there is no Foreign Tax Credit allowed on any foreign tax you paid on U.S. excluded income. (The U.S. is already charging you zero tax on excluded income.)

Do you have any U.S. citizen children living at home by any chance?

H&R Block has a free edition of their tax preparation software, available through their Web site. If you're otherwise satisfied with H&R Block, and if your tax situation hasn't changed much (or at all), then you could try their online version this tax year and see if you can save some money on U.S. tax preparation assistance. File IRS Form 4868 to get an extension until October 15 (date of receipt of your tax return at the IRS if mailing from outside the U.S.) if you'd like some more time to file, although that doesn't extend the payment deadline if you owe any U.S. tax.


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## byline (Dec 5, 2011)

Nope, no children living at home. No children at all, in fact. My situation is very simple: meager income, married to a Canadian, so my status is "married, filing separately." I also have a small amount of interest income that I declare ($142.40 CAD). And that's it. Forms my tax preparer used last year: 1040, 1116 and 8965.

Unfortunately, going by the Free File site, H&R Block imposes an age limit (between 17 and 50). I'm 57. I don't see any such age restrictions for OLT.com, so I will likely go with them.

Question: Do the online forms automatically convert Canadian (or whichever nationality) dollars to U.S. dollars? Or do we have to calculate that conversion before entering them?


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## BBCWatcher (Dec 28, 2012)

byline said:


> Forms my tax preparer used last year: 1040, 1116 and 8965.


That's _probably_ OK. Did you end up owing any U.S. income tax that way?



> Unfortunately, going by the Free File site, H&R Block imposes an age limit (between 17 and 50). I'm 57.


You're going to the wrong site. Go directly to H&R Block's Web site as I mentioned. Here's the link.



> Question: Do the online forms automatically convert Canadian (or whichever nationality) dollars to U.S. dollars? Or do we have to calculate that conversion before entering them?


Some tax preparation software provides a feature that lets you input foreign currency amounts (and will convert them for you), but unless you see that feature explicitly you should assume all input is in U.S. dollars. You can use the IRS's exchange rates or any reasonable published alternative. (Some people use oanda.com, for example.) You just have to be consistent. You can't cherrypick your favorite exchange rates in some random scheme.


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## Bevdeforges (Nov 16, 2007)

byline said:


> Nope, no children living at home. No children at all, in fact. My situation is very simple: meager income, married to a Canadian, so my status is "married, filing separately." I also have a small amount of interest income that I declare ($142.40 CAD). And that's it. Forms my tax preparer used last year: 1040, 1116 and 8965.


That seems "odd" as usually, the 2555 or 2555-EZ is the quickest way to go with earned income. The 1116 can get very bogged down if you have to split "your" share of your Canadian income taxes out from what you and your husband jointly paid (if that's how they do income tax in Canada).



> Unfortunately, going by the Free File site, H&R Block imposes an age limit (between 17 and 50). I'm 57. I don't see any such age restrictions for OLT.com, so I will likely go with them.


I saw the H&R Block free site that BBC mentions. Have never used it, but they do seem to handle all the forms you'll likely need. Just be sure you can print out a copy for your records before you transmit the forms. (That's one trick I found on another "free" site a couple years ago.)



> Question: Do the online forms automatically convert Canadian (or whichever nationality) dollars to U.S. dollars? Or do we have to calculate that conversion before entering them?


I've never seen that in a filing program. But it's simple enough to use the IRS posted rates as BBC has linked to them.
Cheers,
Bev


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## byline (Dec 5, 2011)

BBCWatcher said:


> Some tax preparation software provides a feature that lets you input foreign currency amounts (and will convert them for you), but unless you see that feature explicitly you should assume all input is in U.S. dollars. You can use the IRS's exchange rates or any reasonable published alternative. (Some people use oanda.com, for example.) You just have to be consistent. You can't cherrypick your favorite exchange rates in some random scheme.


My strategy has been quite consistent. When preparing my FBARs, I have always used Yahoo's currency converter. I enter the date from the financial statement I'm using, then the amount in Canadian dollars, and Yahoo converts it from CAD to USD for that. Those are the figures I use, and no one has ever questioned it.


Bevdeforges said:


> That seems "odd" as usually, the 2555 or 2555-EZ is the quickest way to go with earned income. The 1116 can get very bogged down if you have to split "your" share of your Canadian income taxes out from what you and your husband jointly paid (if that's how they do income tax in Canada).


It's because this particular account has my share of the proceeds from the sale of our house back in 2011. So, even though it's a joint account, I declare it on both my Canadian and U.S. tax returns.


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