[foreign tax credit and income questions]

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ketanco
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[foreign tax credit and income questions]

Post by ketanco » Tue Mar 20, 2018 2:41 pm

On form 2555 line 10, the start date for bona fide residence should be january 1st of the year that the taxes are being filed for (if you became a foreign residence before that date I mean)? or, the first date ever (which is prior) that your foreign residency started that still continues?

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Duckie
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Re: foreign residence start date

Post by Duckie » Tue Mar 20, 2018 4:42 pm

ketanco wrote:On form 2555 line 10, the start date for bona fide residence should be january 1st of the year that the taxes are being filed for (if you became a foreign residence before that date I mean)? or, the first date ever (which is prior) that your foreign residency started that still continues?
I just played with this in TurboTax. When I chose 6/1/2016 as the date I started living in the foreign country, TT accepted this even though it was before 2017 and put that date on line 10 of the 2555 form.

plats
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Re: foreign residence start date

Post by plats » Tue Mar 20, 2018 5:14 pm

ketanco wrote:
Tue Mar 20, 2018 2:41 pm
On form 2555 line 10, the start date for bona fide residence should be january 1st of the year that the taxes are being filed for (if you became a foreign residence before that date I mean)? or, the first date ever (which is prior) that your foreign residency started that still continues?
Enter the actual date your foreign residence began.

ketanco
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how does it work between foreign tax credit vs foreign income excl

Post by ketanco » Wed Mar 21, 2018 6:33 am

[Thread merged into here, see below. --admin LadyGeek]

A US citizen living abroad can take earned income credit for earned income. But what about other type of income which is not in earned income category but you still pay tax to the foreign country as you are resident there? For example, capital gain from stock trading. So while you take the credit for earned income, at the same time can you also take foreigm tax credit, for that stock trading, since you could not include it in earned income exclusion?

Question 2- in your first year abroad, if you only have capital gain income that you pay taxes to the foreign country, does it mean you are choosing the foreign tax credit option and for te coming years you are stuck with that option even for your earned income later after you find employment in the other country? I saw a 5 year limit on publication 54, does it apply to changing both ways or just from earned income exclusion to foreign tax credit?

clutchied
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Re: how does it work between foreign tax credit vs foreign income excl

Post by clutchied » Wed Mar 21, 2018 7:45 am

the credit is for foreign taxes paid. Sometimes dividend payments will withhold a foreign tax on the transaction. You can take a credit on that.

The income exclusion allows you to exclude up to around ~$90k of foreign sourced income before you have to pay US tax. You also may have to pay tax on your foreign earned income.

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HueyLD
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Re: how does it work between foreign tax credit vs foreign income excl

Post by HueyLD » Wed Mar 21, 2018 4:30 pm

For question one: you can take FEIE and FTC on the same return provided that they are on different types of income.

For example, you can take FTC on dividends and capital gain income and take FEIE on foreign earning income and housing exclusion.

For question two: you must make an election on form 2555 to take the FEIE for the first time. You can revoke tha election in a later year and take the FTC. Once you have revoked the election, you cannot make another election to use the FEIE for five years.

See Pub 54 for additional guidance. It is highly recommended for those living overseas to become familiar with Pub 54 and Form 2555. Getting professional help is also a good idea if reading tax laws is not something you want to do.

ketanco
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Re: how does it work between foreign tax credit vs foreign income excl

Post by ketanco » Wed Mar 21, 2018 4:38 pm

HueyLD wrote:
Wed Mar 21, 2018 4:30 pm
For question one: you can take FEIE and FTC on the same return provided that they are on different types of income.

For example, you can take FTC on dividends and capital gain income and take FEIE on foreign earning income and housing exclusion.

For question two: you must make an election on form 2555 to take the FEIE for the first time. You can revoke tha election in a later year and take the FTC. Once you have revoked the election, you cannot make another election to use the FEIE for five years.

See Pub 54 for additional guidance. It is highly recommended for those living overseas to become familiar with Pub 54 and Form 2555. Getting professional help is also a good idea if reading tax laws is not something you want to do.
Thanks a lot ... and your answer to question 2: do you mean, that the only limit is when , IF, you revoked the FEIE, which then necessitates waiting 5 year period, but not vice versa, such as, if you started with FTC from the beginning, you can go to FEIE at anytime... So the only thing is, after doing FEIE, AND if you change it back to FTC that is a problem. and of course, this only applies to earned type of income... unearned income such as stock trade income is always FTC no matter what you are doing or how you are changing earned income with FEIE or FTC.. did I understand you correctly?

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HueyLD
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Re: how does it work between foreign tax credit vs foreign income excl

Post by HueyLD » Wed Mar 21, 2018 4:57 pm

See page 20 - 21 of Pub 54.

ketanco
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do you need to show a foreign tax as long as you show its income?

Post by ketanco » Thu Mar 22, 2018 7:22 am

[Thread merged into here, see below. --admin LadyGeek]

I live abroad and the foreign coutry i m at said even if my capital gain was entirely from US stock trades, i must pay taxes to them since i am their resident. Now, my whole income for the year is below 10k anyway so i will not owe any tax to US. So as long as i show this capital gains as usual on schedule D to US, do i also need to show foreign taxes i paid on this? If so, is it just another tax form along with others or you need a manually written statement with it so my return will be ineligible for efile? Because i am using software now which was convenient

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HueyLD
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Re: do you need to show a foreign tax as long as you show its income?

Post by HueyLD » Thu Mar 22, 2018 9:49 am

Two rules on FTC.

(1) Your FTC is limited to the U.S. tax liability on the same income.

(2) The FTC is a nonrefundable credit, meaning that your FTC is limited to your U.S. tax liability (with certain other adjustments which are not relevant here).

Based on what you said, you will not have to fill out the FTC form (form 1116).

ketanco
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Re: do you need to show a foreign tax as long as you show its income?

Post by ketanco » Thu Mar 22, 2018 3:00 pm

HueyLD wrote:
Thu Mar 22, 2018 9:49 am
Two rules on FTC.

(1) Your FTC is limited to the U.S. tax liability on the same income.

(2) The FTC is a nonrefundable credit, meaning that your FTC is limited to your U.S. tax liability (with certain other adjustments which are not relevant here).

Based on what you said, you will not have to fill out the FTC form (form 1116).
thanks a lot, and two things for follow up... is US stock trading capital gain income eligible for this? I made trades on internet with US stocks, the money goes to my US bank, everything is in the US, except that I live in foreign country, and they said that I must pay taxes on it which I did today. So, if my US tax liability was above zero, I could have claimed this and it would be eligible right? And also, since it makes no sense for me to claim this now, is there an option to claim it in later years in my US tax return if/when I have a US tax liabillity in those later years? and if so how many year limit is there

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HueyLD
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Re: do you need to show a foreign tax as long as you show its income?

Post by HueyLD » Thu Mar 22, 2018 3:06 pm

As a U.S. citizen, you are to report income from worldwide sources regardless of your residence.

If you are not sure as to your U.S. tax liability, use the tax software to do your U.S. return and it should tell you.

If the trades were done in 2017, you must report them on your 2017 tax return and so forth. You cannot choose when to report them.

ketanco
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Re: do you need to show a foreign tax as long as you show its income?

Post by ketanco » Thu Mar 22, 2018 3:13 pm

HueyLD wrote:
Thu Mar 22, 2018 3:06 pm
As a U.S. citizen, you are to report income from worldwide sources regardless of your residence.

If you are not sure as to your U.S. tax liability, use the tax software to do your U.S. return and it should tell you.

If the trades were done in 2017, you must report them on your 2017 tax return and so forth. You cannot choose when to report them.
as I said above.. I will report the income itself on US tax return schedule D as usual. I am talking about reporting the foreign tax paid on it and when reporting and when can I take the credit if dont report the foreign tax that I pay now

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HueyLD
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Re: do you need to show a foreign tax as long as you show its income?

Post by HueyLD » Thu Mar 22, 2018 3:14 pm

If you paid foreign taxes in 2017, it cannot be used in other years.

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LadyGeek
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Re: [foreign tax credit and income questions]

Post by LadyGeek » Thu Mar 22, 2018 4:01 pm

ketanco - In order to give appropriate advice, it's best to keep all the information in one spot. While you have several questions, they are all focused on foreign tax credit and income. Starting a new thread for each question makes it difficult for us to help you.

I have merged those questions into one thread and modified the thread title. Please ask all of your tax questions in this thread. Thank you.
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