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Financial Planning / Tax Strategies
|Subject: Re: Should I file this?||Date: 8/7/2009 5:43 PM|
|Author: edh3||Number: 106709 of 122632|
"This year I don't get a foreign tax credit even though I had foreign taxes withheld. Form 1116 shows zero credit. Should I include it with my return anyway?"
If not all the foreign taxes that you paid (or accrued) were able to be claimed because of the limits imposed by Form 1116, you are allowed a one year carryback of the unused foreign tax, followed by a 10 year carryforward period during which it might be possible to claim the credit. (The carryback period used to be two years.)
It's possible that the carryback/carryforward period will do no good because the credit might still be limited by the calculations on Form 1116. (Note: If you have no foreign income within a year, then Form 1116 will reduce the foreign tax credit allowed to zero for that year.)
A couple of other factors: You cannot carry an unused foreign tax to a year in which you elected to deduct the foreign tax for that year as an itemized deduction.
If the foreign taxes for the year are $300 ($600 if MFJ) or less and due to passive (e.g., interest or dividends) category income items, you can elect to claim the foreign taxes paid without using Form 1116. No carryover of unused foreign taxes is allowed either from or to a year in which such election is made.
As you can see, the rules are somewhat complicated. By attaching a Form 1116 in your case, you are saying that you have an unused foreign tax that can be carried to another year. (However, as already mentioned, it often happens that the carryover credit can't be utilized in a carryover year either.)
There is no requirement to attach a brokerage statement, 1099-DIV, etc., to the return that will be filed. Page 24 of IRS Publication 514 (bottom of right column, under Records to Keep) states "You do not have to attach these records to your Form 1040."
Of course, it doesn't hurt anything if they are attached.
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