foreign tax credits - filing state tax returns

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jackal981
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foreign tax credits - filing state tax returns

Post by jackal981 » Wed Feb 16, 2011 1:50 am

I declare FTC's only on my federal tax returns right? Tried doing it for my state(AZ) but it asks me for individual countries!

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joe8d
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Post by joe8d » Wed Feb 16, 2011 9:34 pm

I declare FTC's only on my federal tax returns right?
Right.
All the Best, | Joe

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grabiner
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Re: foreign tax credits - filing state tax returns

Post by grabiner » Wed Feb 16, 2011 11:45 pm

jackal981 wrote:I declare FTC's only on my federal tax returns right? Tried doing it for my state(AZ) but it asks me for individual countries!
This varies by state; some states allow a foreign tax credit, but I didn't see one on the Arizona tax forms.

(There is normally no logical reason for the foreign tax credit on a state tax form. You have already taken a credit for the full amount of foreign tax on your federal tax form, so you are in the same situation as if you never paid the tax. If your state allows you a deduction for the federal tax, then it should logically also allow you a deduction for the foreign tax credit, to keep you in the same situation as if you had never paid the tax.)
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RustyShackleford
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Re: foreign tax credits - filing state tax returns

Post by RustyShackleford » Thu Feb 17, 2011 1:02 am

grabiner wrote:
jackal981 wrote:I declare FTC's only on my federal tax returns right? Tried doing it for my state(AZ) but it asks me for individual countries!
This varies by state; some states allow a foreign tax credit, but I didn't see one on the Arizona tax forms.
I didn't file FTC in North Carolina for years due to the documentation
requirement. Then one day I asked a phone rep and she said "oh,
just send in your mutual fund 1099-DIV showing the income from
the foreign fund and the tax paid". Simple as that. Fortunately for
my sanity, law only allowed amended returns 3 years back, but they
refunded those without complaint.
(There is normally no logical reason for the foreign tax credit on a state tax form. You have already taken a credit for the full amount of foreign tax on your federal tax form, so you are in the same situation as if you never paid the tax.
Not quite. Without the FTC, the state is making you pay tax on money you already paid tax on to foreign countries. (Note the FTC is limited to the fraction of your state tax equal to the ratio of your foreign income to total income). Apparently there is no expectation to not pay federal and state tax both on the same income, we do it all the time. Apparently the law means to say that if we pay foreign tax on income, we should have to pay neither federal nor state taxes on that money. That's all the FTCs do, due to the ratio limitation.
Last edited by RustyShackleford on Thu Feb 17, 2011 8:58 pm, edited 1 time in total.

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HueyLD
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Re: foreign tax credits - filing state tax returns

Post by HueyLD » Thu Feb 17, 2011 3:36 am

jackal981 wrote:I declare FTC's only on my federal tax returns right? Tried doing it for my state(AZ) but it asks me for individual countries!
Download form 309 and instructions from the azdor.gov site and download form 1116 and instructions from the irs.gov site. You will know how to fill out those forms after reading the instructions.

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grabiner
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Re: foreign tax credits - filing state tax returns

Post by grabiner » Thu Feb 17, 2011 8:10 pm

grabiner wrote:
jackal981 wrote:I declare FTC's only on my federal tax returns right? Tried doing it for my state(AZ) but it asks me for individual countries!
This varies by state; some states allow a foreign tax credit, but I didn't see one on the Arizona tax forms.
Following some discussion here, I found the form, and I will mention this when I update theState income taxes pages on the wiki to include Arizona if no Arizona resident wants to write that section first.
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grabiner
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Post by grabiner » Fri Feb 18, 2011 11:53 pm

Update: Arizona has now been added to the State income taxes page on the wiki.

The foreign tax credit makes for an interesting situation, as you can usually get an extra foreign tax credit equal to the fraction of your income which was subject to foreign tax. For example, if a mutual fund paid $10,000 in foreign dividends on which $800 of foreign tax was withheld, you would get an $800 foreign tax credit on your federal return, and likely about $400 on your Arizona return. If the divdends are qualified, you would pay $1500 in federal tax on them, so your net tax cost would be just $300.
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jmk
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Re: foreign tax credits - filing state tax returns

Post by jmk » Sun Feb 10, 2019 8:25 pm

HueyLD wrote:
Thu Feb 17, 2011 3:36 am
jackal981 wrote:I declare FTC's only on my federal tax returns right? Tried doing it for my state(AZ) but it asks me for individual countries!
Download form 309 and instructions from the azdor.gov site and download form 1116 and instructions from the irs.gov site. You will know how to fill out those forms after reading the instructions.
For mutual funds, what "country" do you write on form 309?

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HueyLD
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Re: foreign tax credits - filing state tax returns

Post by HueyLD » Mon Feb 11, 2019 12:47 am

RIC as in Registered Investment Companies. This has been in the federal form 1116 instructions for decades and AZ uses the federal terminology.

SunDevil
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Re: foreign tax credits - filing state tax returns

Post by SunDevil » Tue Feb 12, 2019 1:46 pm

Applying for the FTC on Arizona return using Turbotax: It asks for 1) Income reported to both AZ and RIC 2) Portion taxed by AZ 3) Portion taxed by RIC. If all the income is from dividends, do I enter the total ordinary dividends for each of these lines?

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HueyLD
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Re: foreign tax credits - filing state tax returns

Post by HueyLD » Tue Feb 12, 2019 2:31 pm

Here are the instructions for Form 309, including line by line instructions.

https://azdor.gov/file/6762/download?token=DPQXB2FW

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jmk
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Re: foreign tax credits - filing state tax returns

Post by jmk » Thu Feb 21, 2019 5:38 pm

This Az procedure explains in detail how to determine income answers on the form 309:
Procedure for Calculating Credit for Taxes Paid to Another State or Country by Arizona Resident Individuals
https://azdor.gov/sites/default/files/P ... p08-1.pdf

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