Foreign Tax AMT Limit - Did my Accountant use Simplified Method or not?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Copernicus
Posts: 321
Joined: Thu May 16, 2013 4:38 pm

Foreign Tax AMT Limit - Did my Accountant use Simplified Method or not?

Post by Copernicus » Sun Mar 04, 2018 7:29 pm

First year doing own taxes using TurboTax.
Last year (and in the past), the accountant filled out regular Form 1116 and also AMT Form 1116 for foreign tax of ~11300. Since he filled both 1116 forms, I suppose that he did not use simplified method. This year, I need to be consistent with the past, hence trying to clarify whether my understanding is correct? Thanks.

kaneohe
Posts: 4824
Joined: Mon Sep 22, 2008 12:38 pm

Re: Foreign Tax AMT Limit - Did my Accountant use Simplified Method or not?

Post by kaneohe » Mon Mar 05, 2018 2:08 am

Which simplified method are you talking about?

Copernicus
Posts: 321
Joined: Thu May 16, 2013 4:38 pm

Re: Foreign Tax AMT Limit - Did my Accountant use Simplified Method or not?

Post by Copernicus » Mon Mar 05, 2018 12:02 pm

kaneohe wrote:
Mon Mar 05, 2018 2:08 am
Which simplified method are you talking about?
Simplified AMT Foreign Tax Credit Limitation.

kaneohe
Posts: 4824
Joined: Mon Sep 22, 2008 12:38 pm

Re: Foreign Tax AMT Limit - Did my Accountant use Simplified Method or not?

Post by kaneohe » Mon Mar 05, 2018 12:22 pm

from instructions for F6251 p13/14 https://www.irs.gov/pub/irs-pdf/i6251.pdf

Is line 17 on both forms the same? That would suggest simplified limitation election was used.
The forms don't necessarily give the same results even if this election was used.

"Simplified Limitation Election
You may elect to use a simplified
section 904 limitation to figure your
AMTFTC. If you do, when figuring your
AMTFTC, you will use the same net
foreign source income for AMT that you
used for regular tax. (The amount on
line 17 of your AMT Form 1116 will be
the same as the amount on line 17 of
your regular tax Form 1116.) You must
make the election for the first tax year
after 1997 for which you claim an
AMTFTC. If you don’t make the election
for that year, you may not make it for a
later year. Once made, the election
applies to all later tax years and may be
revoked only with IRS consent."

Copernicus
Posts: 321
Joined: Thu May 16, 2013 4:38 pm

Re: Foreign Tax AMT Limit - Did my Accountant use Simplified Method or not?

Post by Copernicus » Mon Mar 05, 2018 1:11 pm

kaneohe wrote:
Mon Mar 05, 2018 12:22 pm
from instructions for F6251 p13/14 https://www.irs.gov/pub/irs-pdf/i6251.pdf

Is line 17 on both forms the same? That would suggest simplified limitation election was used.
The forms don't necessarily give the same results even if this election was used.

"Simplified Limitation Election
You may elect to use a simplified
section 904 limitation to figure your
AMTFTC. If you do, when figuring your
AMTFTC, you will use the same net
foreign source income for AMT that you
used for regular tax. (The amount on
line 17 of your AMT Form 1116 will be
the same as the amount on line 17 of
your regular tax Form 1116.) You must
make the election for the first tax year
after 1997 for which you claim an
AMTFTC. If you don’t make the election
for that year, you may not make it for a
later year. Once made, the election
applies to all later tax years and may be
revoked only with IRS consent."
Thanks for jumping in to help my understanding!
Line 17 amounts are: $10078 on regular F1116 and $11293 on AMT F1116. That would indicate that the Simplified AMT Foreign Tax Credit Limitation was not used. For this reason, I will have to continue to avoid the simplified method. Correct?

By the way, Line 30 of both regular F1116 and AMT F1116 are the same: $1526, which may not be unusual; but confuses me.

kaneohe
Posts: 4824
Joined: Mon Sep 22, 2008 12:38 pm

Re: Foreign Tax AMT Limit - Did my Accountant use Simplified Method or not?

Post by kaneohe » Mon Mar 05, 2018 1:47 pm

sounds correct about the simplified method not being used. About line 30 being the same on both forms........what was the foreign tax paid?
Perhaps the same number? Remember the FTC compares 2 numbers.....the amount of FT paid vs the allowable credit which is based on the foreign income and the lower of your foreign tax rate and your US rate. If the allowable credit in both cases of 1116 are higher than the FT paid, there is no limitation and the FTC is the FT paid........that might account for why the FTC is the same for both forms. It would be highly unlikely that the allowable credit were the same for both esp since the foreign income is different on both forms......but if they don't limit the credit, then the credit would be the same on both forms.

Copernicus
Posts: 321
Joined: Thu May 16, 2013 4:38 pm

Re: Foreign Tax AMT Limit - Did my Accountant use Simplified Method or not?

Post by Copernicus » Mon Mar 05, 2018 2:10 pm

kaneohe wrote:
Mon Mar 05, 2018 1:47 pm
sounds correct about the simplified method not being used. About line 30 being the same on both forms........what was the foreign tax paid?
Perhaps the same number? Line Foreign tax paid on both regular F1116 and AMT F1116 was the same = $1526.

Remember the FTC compares 2 numbers.....the amount of FT paid vs the allowable credit which is based on the foreign income and the lower of your foreign tax rate and your US rate. If the allowable credit in both cases of 1116 are higher than the FT paid, there is no limitation and the FTC is the FT paid........that might account for why the FTC is the same for both forms. It would be highly unlike the the allowable credit were the same for both esp since the foreign income is different on both forms......but if they don't limit the credit, then the credit would be the same on both forms.
Thank you, kaneohe. In TurboTax input, I was asked whether in the past, Simplified AMT Foreign Tax Credit Limitation was used. I should ask TurboTax to not use Simplified AMT Foreign Tax Credit Limitation. ........ and then, let it handle the rest.
Thanks.

Post Reply