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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: 8bits who wrote (29199)	12/10/2007 11:36:50 PM
From: Paul Senior	Respond to of 79359

The Foreign Tax Credit has been discussed here and elsewhere. I'll state again my opinion based on MY experience. Others may differ. Yes, " you can file to get a 1 for 1 tax credit off your US taxes". This is what is wanted. (I.e. it's preferable, rather taking the Canadian tax as a deduction on US tax forms, or (heavens!) just doing nothing with it.) It's really no problem as long as the Canadian tax is not more than $600 per year (for someone married,filing jointly). I assume anybody here asking now about the tax consequences is maybe, if they are even going to buy one of these things now, is only going to get one month's or one quarter's distribution for tax year 2007. (I don't want to believe there's anybody here who's been in these things for a long while and only now gets around to asking about the tax consequences.)And so unless the distribution amount is fairly substantial ($4000 distribution x.15=$600 taken in Canadian taxes), it's just a simple matter of filling out the amount on one line, if I recall correctly. However, if the Canadian deducted tax is OVER $600 (for someone filing jointly), then Form 1116 MUST be completed in order to get a credit against USA taxes. irs.gov I have found this form completely incomprehensible. As I have stated elsewhere, "You enter line items from worksheets and other referenced forms (e.g. on line 17: "Enter the amount from line 1041 (minus any amount on Form 8914 line 6)" and then this: "caution: If you figured your TAX using the lower rates on qualified dividends or capital gains, see page 16 of the instructions". You have to figure capital gains or losses long-term vs. short-term for the FOREIGN stocks you might have sold. Or maybe it's for the USA stocks after subtracting the FOREIGN stocks in each of these categories. (I can't tell.)" Maybe, maybe for somebody who's only foreign credit (dividend income)and stock sales are in one foreign country (Canada), then maybe the form might be completed. But for anybody who's been around here or the other value threads, that person, imo, has very possibly bought or sold or received dividends this year from several foreign stocks. E.g. we would be talking Norwegian oil stocks/income, Chinese stocks/income, Taiwanese stocks, Mexican stocks, Brazilian stocks, Canadian stocks, etc. etc. Not to be ignored in the calculations: the income and buys and sells of emerging market funds or any foreign funds where a dividend was paid and a country tax withheld. My summary: You will see many media reports or tax advisers who (blithely) say "complete Form 1116 for the credit". I say humbug. I claim it is not possible for any normal person to understand or correctly complete Form 1116. (Stumped my TurboTax program too in my attempts at using it.) What I've done last year, (having more than $600 in foreign tax credits), is to do the alternative thing, which is to sum the foreign tax credits reported in the taxable brokerage 1099 statements and take the total as a deduction. It's just reported on one line. Of course a deduction is not as good as a credit, but there you are. All just my experience and from my abilities.