foreign tax credit / income / turbotax

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
AQ
Posts: 885
Joined: Mon Feb 25, 2008 10:38 pm

foreign tax credit / income / turbotax

Post by AQ »

Doing my tax with turbotax now and having a question about foreign tax, etc.

When I entered an amount for foreign tax paid in Turbotax, it then asked for the portion of income which is foreign income. For example, I invested in Vanguard total international stock. In my 1099-div, I got $1000 dividend, and paid $50 foreign tax (box6). Then TurboTax asked how much of $1000 come from a foreign source. Vanguard provided a form called 'Foreign Tax Pai Reporting Information, and it's box 2 gives 'foreign income', say in my example it's $970, which I used to enter TurboTax.

Two questions:
1) why does TurboTax ask for what portion of the income from foreign? Does it matter? I played TurboTax with random numbers and the tax due doesn't seem changing.

2) I have money in Fidelity which does NOT report a number of portion for their international funds. So what is the rignt number for the foreign portion when TurboTax asks?

Thank you.
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: foreign tax credit / income / turbotax

Post by grabiner »

AQ wrote:1) why does TurboTax ask for what portion of the income from foreign? Does it matter? I played TurboTax with random numbers and the tax due doesn't seem changing.
If you file Form 1116 (needed for foreign tax over $300 single/$600 joint), your foreign tax credit is the lesser of the foreign tax you actually paid, or the percentage of your US tax that was imposed on income taxed by the foreign country.

Thus, if you earn $200,000 and owe $40,000 in US tax before credits, and you have $1000 in foreign tax, you may take a credit for the full $1000 only if you have at least $5000 in foreign income. (Form 1116 also adjusts for issues such as which deductions are related to the US income only, or to the foreign income only.)

Usually, if you have mutual funds, the foreign tax credit will not be close to the limitation; most mutual funds pay about 7% of their foreign income in tax, and most taxpayers who have to file Form 1116 for the foreign tax credit pay much more than 7% of their total income in tax.
2) I have money in Fidelity which does NOT report a number of portion for their international funds. So what is the rignt number for the foreign portion when TurboTax asks?
You should be able to find the number on Fidelity's web site, under a category such as "Tax Information". I have had to do this for my non-Vanguard ETFs; if iShares says that 60% of the $1000 dividend on an ETF was foreign, then I enter $600.
Wiki David Grabiner
livesoft
Posts: 86075
Joined: Thu Mar 01, 2007 7:00 pm

Re: foreign tax credit / income / turbotax

Post by livesoft »

ishares has the info on their web site: http://us.ishares.com/content/stream.js ... cation/pdf

I don't have any taxable foreign funds at Fidelity, so I cannot tell you where it is.
Wiki This signature message sponsored by sscritic: Learn to fish.
HouseStark
Posts: 324
Joined: Mon Oct 15, 2012 2:31 pm
Location: Minneapolis, MN

Re: foreign tax credit / income / turbotax

Post by HouseStark »

grabiner wrote: If you file Form 1116 (needed for foreign tax over $300 single/$600 joint), your foreign tax credit is the lesser of the foreign tax you actually paid, or the percentage of your US tax that was imposed on income taxed by the foreign country.
If you are this position of having no more than $300/$600 in foreign taxes paid, then you can just put all of the dividends paid as foreign dividends and avoid the needlessly tracking down the actual amount of foreign dividends. I don't know TT, but it should either automatically take the foreign tax credit without filing Form 1116 or ask whether you want to not file Form 1116, if not required, which you should opt to do (not file 1116, that is). Knowing these rules helps you to know what the software actually needs to do the returns and not waste time on what is extraneous.
Topic Author
AQ
Posts: 885
Joined: Mon Feb 25, 2008 10:38 pm

Re: foreign tax credit / income / turbotax

Post by AQ »

Many thanks for the explanation. Very helpful. Foreign tax credits are exclusively from my investments in mutual funds of international indices. If I understand it correctly, the dividend income should be mostly from foreign sources and it's almost certainty that I can apply the entire credit. In that case, I guess I could just plug in any number, say, the entire dividend amount?

Otherwise, my dividend incomes is in thousands. So if any fidelity investors her and know the place to find this info, I'd highly appreciate it.
User avatar
HueyLD
Posts: 9789
Joined: Mon Jan 14, 2008 9:30 am

Re: foreign tax credit / income / turbotax

Post by HueyLD »

................
Last edited by HueyLD on Sun Feb 08, 2015 6:43 pm, edited 1 time in total.
livesoft
Posts: 86075
Joined: Thu Mar 01, 2007 7:00 pm

Re: foreign tax credit / income / turbotax

Post by livesoft »

The foreign source income could be 100% of the dividend income or it could be less. For instance, I own VSS and foreign source income is about 83.94% of the dividend amount. For SCZ, it is about 74%.

It is amazing to me that the Fidelity Spartan Int'l Index has about 50% foreign source income. That is unexpected considering that Vanguard's VEU is 100% foreign source although only 72.5% qualified dividend income.
Wiki This signature message sponsored by sscritic: Learn to fish.
Topic Author
AQ
Posts: 885
Joined: Mon Feb 25, 2008 10:38 pm

Re: foreign tax credit / income / turbotax

Post by AQ »

HueyLD wrote:
AQ wrote:So if any fidelity investors her and know the place to find this info, I'd highly appreciate it.
http://personal.fidelity.com/planning/t ... gn_tax.pdf
wow, thanks a lot. I looked up the site quite a few times and didn't find it.. thank you, HueyLD
Topic Author
AQ
Posts: 885
Joined: Mon Feb 25, 2008 10:38 pm

Re: foreign tax credit / income / turbotax

Post by AQ »

livesoft wrote:The foreign source income could be 100% of the dividend income or it could be less. For instance, I own VSS and foreign source income is about 83.94% of the dividend amount. For SCZ, it is about 74%.

It is amazing to me that the Fidelity Spartan Int'l Index has about 50% foreign source income. That is unexpected considering that Vanguard's VEU is 100% foreign source although only 72.5% qualified dividend income.
This fund is what I used, and I was surprised too since this fund doesn't have any US stock exposures.. so suppose it's from their cash holdings, or currency derivatives? Anyway, even with 50%, guess my US tax rates should be still high enough to be able to claim the entire credit, as discussed earlier.

Now we're on this, is this the fund most appropriate for my international exposure, say, in the 3-fund portfolio?
livesoft
Posts: 86075
Joined: Thu Mar 01, 2007 7:00 pm

Re: foreign tax credit / income / turbotax

Post by livesoft »

I suggest looking into FSGDX instead. I had our 401(k) plan switch from using FSIVX to using FSGDX instead. (That is, if you must use a Fidelity fund.)
Wiki This signature message sponsored by sscritic: Learn to fish.
Calm Man
Posts: 2917
Joined: Wed Sep 19, 2012 9:35 am

Re: foreign tax credit / income / turbotax

Post by Calm Man »

livesoft wrote:The foreign source income could be 100% of the dividend income or it could be less. For instance, I own VSS and foreign source income is about 83.94% of the dividend amount. For SCZ, it is about 74%.

It is amazing to me that the Fidelity Spartan Int'l Index has about 50% foreign source income. That is unexpected considering that Vanguard's VEU is 100% foreign source although only 72.5% qualified dividend income.
Livesoft, I haven't had the occasion to receive a 1099 from a Vanguard (or any) international fund thus far although barring every company cutting dividends to zero I will for 2013. I know the 1099-DIV will list the total dividends, amount qualified and foreign taxes paid. Do they also list the % of dividends form foreign sources or do you have to go elsewhere to find it?
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: foreign tax credit / income / turbotax

Post by grabiner »

Calm Man wrote:Livesoft, I haven't had the occasion to receive a 1099 from a Vanguard (or any) international fund thus far although barring every company cutting dividends to zero I will for 2013. I know the 1099-DIV will list the total dividends, amount qualified and foreign taxes paid. Do they also list the % of dividends form foreign sources or do you have to go elsewhere to find it?
Vanguard lists the foreign income from its own funds, and from Vanguard ETFs held in a Vanguard brokerage account. If you hold non-Vanguard ETFs or mutual funds in your Vanguard account, you have to look up the information from the ETF provider.
Wiki David Grabiner
livesoft
Posts: 86075
Joined: Thu Mar 01, 2007 7:00 pm

Re: foreign tax credit / income / turbotax

Post by livesoft »

Calm Man wrote:I know the 1099-DIV will list the total dividends, amount qualified and foreign taxes paid. Do they also list the % of dividends form foreign sources or do you have to go elsewhere to find it?
One has to go elsewhere to find it. That info is not on the 1099-DIV, nor is it included in any mailing that Vanguard sends one.

Actually, I find it rather surprising that none of my brokers provide that info in an easily digestible form. This thread has links to places where the info is for Fidelity and iShares. I always print out such info, highlight parts of it, and put it with my tax return folder for that year.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
House Blend
Posts: 4878
Joined: Fri May 04, 2007 1:02 pm

Re: foreign tax credit / income / turbotax

Post by House Blend »

livesoft wrote:
Calm Man wrote:I know the 1099-DIV will list the total dividends, amount qualified and foreign taxes paid. Do they also list the % of dividends form foreign sources or do you have to go elsewhere to find it?
One has to go elsewhere to find it. That info is not on the 1099-DIV, nor is it included in any mailing that Vanguard sends one.
That's not my experience. I have VG mutual funds (no brokerage account), and every year I get a separate mailing from Vanguard that lists my foreign div income and QDI-eligible foreign income, etc.

And you can also figure out these numbers yourself by navigating to the VG tax center:
https://advisors.vanguard.com/VGApp/iip ... ntaxcredit
Calm Man
Posts: 2917
Joined: Wed Sep 19, 2012 9:35 am

Re: foreign tax credit / income / turbotax

Post by Calm Man »

House Blend wrote:
livesoft wrote:
Calm Man wrote:I know the 1099-DIV will list the total dividends, amount qualified and foreign taxes paid. Do they also list the % of dividends form foreign sources or do you have to go elsewhere to find it?
One has to go elsewhere to find it. That info is not on the 1099-DIV, nor is it included in any mailing that Vanguard sends one.
That's not my experience. I have VG mutual funds (no brokerage account), and every year I get a separate mailing from Vanguard that lists my foreign div income and QDI-eligible foreign income, etc.

And you can also figure out these numbers yourself by navigating to the VG tax center:
https://advisors.vanguard.com/VGApp/iip ... ntaxcredit
Perfect houseblend. Livesoft and grabiner, you probably know this. I went to the site recommended by houseblend. I looked at the Vanguard global equity fund (not that I would own it). I see this:

Foreign tax = Income dividend* × 0.051255
Foreign income = Total foreign tax × 18.20406
QDI-eligible foreign income = Total foreign tax × 9.98747
Eligible foreign income after QDI adjustment = Total foreign tax × 12.49692

So from this one can calculate whatever is not given on the 1099. I know they give the foreign tax. It is not clear whether to use for foreign income either the foreign income on line 2 or eligible foreign income after QDI adjustment on the last line. Probably doesn't matter.
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: foreign tax credit / income / turbotax

Post by grabiner »

Calm Man wrote:Perfect houseblend. Livesoft and grabiner, you probably know this. I went to the site recommended by houseblend. I looked at the Vanguard global equity fund (not that I would own it). I see this:

Foreign tax = Income dividend* × 0.051255
Foreign income = Total foreign tax × 18.20406
QDI-eligible foreign income = Total foreign tax × 9.98747
Eligible foreign income after QDI adjustment = Total foreign tax × 12.49692

So from this one can calculate whatever is not given on the 1099. I know they give the foreign tax. It is not clear whether to use for foreign income either the foreign income on line 2 or eligible foreign income after QDI adjustment on the last line. Probably doesn't matter.
Yoy may need both numbers. If you have high income (the income limits in the instructions are the bottom of the 33% bracket, and capital gains and qualified dividends are not included) or have very high foreign income, you use the adjusted income on Form 1116; otherwise, you report the full foreign income. The adjusted number treats qualified dividends at only 3/7 of their value as foreign income, reflecting the fact that qualified dividends are taxed at 15% and other income is taxed at a rate likely to be 35%.
Wiki David Grabiner
User avatar
BHCadet
Posts: 391
Joined: Sat Jan 14, 2012 11:47 pm
Location: SoCal

Re: foreign tax credit / income / turbotax

Post by BHCadet »

AQ wrote:Doing my tax with turbotax now and having a question about foreign tax, etc.

When I entered an amount for foreign tax paid in Turbotax, it then asked for the portion of income which is foreign income. For example, I invested in Vanguard total international stock. In my 1099-div, I got $1000 dividend, and paid $50 foreign tax (box6). Then TurboTax asked how much of $1000 come from a foreign source. Vanguard provided a form called 'Foreign Tax Paid Reporting Information, and it's box 2 gives 'foreign income', say in my example it's $970, which I used to enter TurboTax.
Calm Man wrote: Perfect houseblend. Livesoft and grabiner, you probably know this. I went to the site recommended by houseblend. I looked at the Vanguard global equity fund (not that I would own it). I see this:

Foreign tax = Income dividend* × 0.051255
Foreign income = Total foreign tax × 18.20406
QDI-eligible foreign income = Total foreign tax × 9.98747
Eligible foreign income after QDI adjustment = Total foreign tax × 12.49692

So from this one can calculate whatever is not given on the 1099. I know they give the foreign tax. It is not clear whether to use for foreign income either the foreign income on line 2 or eligible foreign income after QDI adjustment on the last line. Probably doesn't matter.
When I downloaded my 1099 from Vanguard directly to TurboTax, I the found the Foreign Income was downloaded also.
But, I couldn't find how the number was calculated until now.
Thanks,
Topic Author
AQ
Posts: 885
Joined: Mon Feb 25, 2008 10:38 pm

Re: foreign tax credit / income / turbotax

Post by AQ »

livesoft wrote:I suggest looking into FSGDX instead. I had our 401(k) plan switch from using FSIVX to using FSGDX instead. (That is, if you must use a Fidelity fund.)
livesoft, I understand all the good arguments for using FSGDX.. One question though: this seems a fairly young fund. Do I need to concern with less experienced investment team, low AUM with any new fund? Or since it's index, all those issues are moot? thanks again.
livesoft
Posts: 86075
Joined: Thu Mar 01, 2007 7:00 pm

Re: foreign tax credit / income / turbotax

Post by livesoft »

Since it is an index fund all those issues are moot.
Wiki This signature message sponsored by sscritic: Learn to fish.
Topic Author
AQ
Posts: 885
Joined: Mon Feb 25, 2008 10:38 pm

Re: foreign tax credit / income / turbotax

Post by AQ »

livesoft, many thanks. Appreciate it. I actually placed an order for this fund today but your answer made me at peace with my action :happy

Also thanks for all the discussions. I'm on Turbotax ever since its launch more than 10 years ago, but this discussion is certainly very enlightening. Thanks!
Post Reply