If I bought Total World Stock would I get the tax credit on foreign taxes?

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iamblessed
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If I bought Total World Stock would I get the tax credit on foreign taxes?

Post by iamblessed »

Asking others?
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jason2459
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Re: If I bought Total World Stock would I get the tax credit on foreign taxes?

Post by jason2459 »

If you mean VT then no. The ex-US holdings need to be over 50%. VT works well for simplicity or in a tax advantaged account. If you want the FTC you're better off holding VTI/VXUS or similar like ITOT/IXUS and set the percentage of weighting between the two to your liking. Or around 56% VTI/ITOT to 44% VXUS/IXUS if you want around the same ratio in VT.
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iamblessed
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Re: If I bought Total World Stock would I get the tax credit on foreign taxes?

Post by iamblessed »

Thanks
tj
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Re: If I bought Total World Stock would I get the tax credit on foreign taxes?

Post by tj »

jason2459 wrote: Wed Aug 12, 2020 9:00 am If you mean VT then no. The ex-US holdings need to be over 50%. VT works well for simplicity or in a tax advantaged account. If you want the FTC you're better off holding VTI/VXUS or similar like ITOT/IXUS and set the percentage of weighting between the two to your liking. Or around 56% VTI/ITOT to 44% VXUS/IXUS if you want around the same ratio in VT.

What you say is inaccurate based on history.

viewtopic.php?t=237427#p3813509
000
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Re: If I bought Total World Stock would I get the tax credit on foreign taxes?

Post by 000 »

tj wrote: Wed Aug 12, 2020 8:00 pm
jason2459 wrote: Wed Aug 12, 2020 9:00 am If you mean VT then no. The ex-US holdings need to be over 50%. VT works well for simplicity or in a tax advantaged account. If you want the FTC you're better off holding VTI/VXUS or similar like ITOT/IXUS and set the percentage of weighting between the two to your liking. Or around 56% VTI/ITOT to 44% VXUS/IXUS if you want around the same ratio in VT.

What you say is inaccurate based on history.

viewtopic.php?t=237427#p3813509
Just changed.
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jason2459
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Re: If I bought Total World Stock would I get the tax credit on foreign taxes?

Post by jason2459 »

tj wrote: Wed Aug 12, 2020 8:00 pm
jason2459 wrote: Wed Aug 12, 2020 9:00 am If you mean VT then no. The ex-US holdings need to be over 50%. VT works well for simplicity or in a tax advantaged account. If you want the FTC you're better off holding VTI/VXUS or similar like ITOT/IXUS and set the percentage of weighting between the two to your liking. Or around 56% VTI/ITOT to 44% VXUS/IXUS if you want around the same ratio in VT.

What you say is inaccurate based on history.

viewtopic.php?t=237427#p3813509
Not inaccurate. They were getting away with it until they weren't and started following the rules of requiring the fund to have more then 50% of the foreign equities in order to pass through the foreign tax credit.
brademac
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Re: If I bought Total World Stock would I get the tax credit on foreign taxes?

Post by brademac »

Does anyone have an estimate on how much of a difference the foreign tax credit makes? Just trying to weigh this cost for the convenience of just having to hold one fund and not having to rebalance like I would if owned total stock and total international fund

If in 15% federal and 5% state brackets would it add something like .10% to the cost of owning the fund versus owning total stock and total international separately and being able to do foreign tax credit on total international? That was my guess but just a guess

Doesn’t have to be exact but was curious approximately how much of a difference the foreign tax credit makes

Thanks
lostdog
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Re: If I bought Total World Stock would I get the tax credit on foreign taxes?

Post by lostdog »

brademac wrote: Fri Aug 14, 2020 7:28 am Does anyone have an estimate on how much of a difference the foreign tax credit makes? Just trying to weigh this cost for the convenience of just having to hold one fund and not having to rebalance like I would if owned total stock and total international fund

If in 15% federal and 5% state brackets would it add something like .10% to the cost of owning the fund versus owning total stock and total international separately and being able to do foreign tax credit on total international? That was my guess but just a guess

Doesn’t have to be exact but was curious approximately how much of a difference the foreign tax credit makes

Thanks
You're correct. About 10 basis points of added cost.
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asset_chaos
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Re: If I bought Total World Stock would I get the tax credit on foreign taxes?

Post by asset_chaos »

Your guess is a good one. Based on my 2018 tax documents, the foreign tax credit for total world amounted to 12 basis points that year.
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grabiner
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Re: If I bought Total World Stock would I get the tax credit on foreign taxes?

Post by grabiner »

brademac wrote: Fri Aug 14, 2020 7:28 am Does anyone have an estimate on how much of a difference the foreign tax credit makes? Just trying to weigh this cost for the convenience of just having to hold one fund and not having to rebalance like I would if owned total stock and total international fund

If in 15% federal and 5% state brackets would it add something like .10% to the cost of owning the fund versus owning total stock and total international separately and being able to do foreign tax credit on total international? That was my guess but just a guess
The foreign tax credit is independent of your federal tax bracket, unless your foreign tax credit is limited because it is less than a prorated share of your federal tax (see Form 1116); this is rare for mutual fund investors. It is independent of your state tax bracket except in those few states which have their own foreign tax credit; in those states, the credit is usually equal to the state tax rate on the foreign dividends, since the foreign tax rate on those dividends is higher.
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MJS
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Re: If I bought Total World Stock would I get the tax credit on foreign taxes?

Post by MJS »

I didn't know until too late....
If you bought Total World Stock AND put it a tax deferred account -- IRA, 401, Roth -- you would NOT get the tax credit on foreign taxes. The Total World has to be in a taxable account in order to have tax credits.
000
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Re: If I bought Total World Stock would I get the tax credit on foreign taxes?

Post by 000 »

MJS wrote: Sat Aug 15, 2020 5:03 pm I didn't know until too late....
If you bought Total World Stock AND put it a tax deferred account -- IRA, 401, Roth -- you would NOT get the tax credit on foreign taxes. The Total World has to be in a taxable account in order to have tax credits.
Total World gets no foreign tax credit no matter where it is held. But yes, for a FTC-eligible fund, the credit can only be claimed if the fund is held in taxable.
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grabiner
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Re: If I bought Total World Stock would I get the tax credit on foreign taxes?

Post by grabiner »

MJS wrote: Sat Aug 15, 2020 5:03 pm I didn't know until too late....
If you bought Total World Stock AND put it a tax deferred account -- IRA, 401, Roth -- you would NOT get the tax credit on foreign taxes. The Total World has to be in a taxable account in order to have tax credits.
However, the higher dividend yields and lower qualified dividends on foreign funds often make it close to break-even whether to hold US or foreign stocks in a taxable account.

Since Total World Stock has a greater dividend tax than a US stock fund, and is not eligible for the foreign tax credit, it is best held in a tax-deferred account.
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tj
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Re: If I bought Total World Stock would I get the tax credit on foreign taxes?

Post by tj »

MJS wrote: Sat Aug 15, 2020 5:03 pm I didn't know until too late....
If you bought Total World Stock AND put it a tax deferred account -- IRA, 401, Roth -- you would NOT get the tax credit on foreign taxes. The Total World has to be in a taxable account in order to have tax credits.

That's true of any international fund. But the domestic funds are more tax efficient....
qwertyjazz
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Re: If I bought Total World Stock would I get the tax credit on foreign taxes?

Post by qwertyjazz »

Just found out that this went away in 2019 - after having TLH into it from separate funds :oops: :oops:
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