Foreign Tax Credit

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Subject Author Date Foreign Tax Credit garagecapital 05-19-2009  Re: Foreign Tax Credit brew.one 05-19-2009  Re: Foreign Tax Credit brew.one 05-20-2009  Re: Foreign Tax Credit Katie 05-19-2009  Re: Foreign Tax Credit adwagner 05-19-2009  Re: Foreign Tax Credit garagecapital 05-19-2009  Re: Foreign Tax Credit Katie 05-20-2009
Posted by garagecapital on May 19, 2009, 9:36 am Please log in for more thread options I am a high-earning US citizen in Australia; I am paying about AU $100,000 in taxes this year. I assume I can take this AU$100,000, about US$73,000, and keep it as ca carry over for 10 years against any US taxes I might owe, right? What, if because of losses on rental property, and tax-deferred contributions, and M-T-M futures, FX and options losses, I have no US income. Or I only owe, say US$10,000 in US taxes. I get to carry over US$63,000 in a US tax credit. right? Okay, now what if I come back to the states on Dec. 31, permanently. Can I still use my US$63,000 carry over for US taxes? Someone told me that I can only use this carry over IF I also have foreign income for that same tax year, which means you lose your carry over pretty much when you come home -- if you don't go abroad again. This can't be true can it? Please tell me I can use this, hypothetical, US$63,000 carry over for up to 10 years in the States even if I never earn another buck abroad. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by brew.one on May 19, 2009, 11:42 am Please log in for more thread options > I am a high-earning US citizen in Australia; I am paying about AU > $100,000 in taxes this year. I assume I can take this AU$100,000, > about US$73,000, and keep it as ca carry over for 10 years against any > US taxes I might owe, right? > > What, if because of losses on rental property, and tax-deferred > contributions, and M-T-M futures, FX and options losses, I have no US > income. Or I only owe, say US$10,000 in US taxes. I get to carry over > US$63,000 in a US tax credit. right? > > Okay, now what if I come back to the states on Dec. 31, permanently. > Can I still use my US$63,000 carry over for US taxes? > > Someone told me that I can only use this carry over IF I also have > foreign income for that same tax year, which means you lose your carry > over pretty much when you come home -- if you don't go abroad again. > This can't be true can it? Please tell me I can use this, > hypothetical, US$63,000 carry over for up to 10 years in the States > even if I never earn another buck abroad. > I would first determine my current U.S. tax liability (on worldwide income). Not too many people qualify as "traders" instead of "investors" and are able to use mark-to-market (and claim net losses greater than $3,000). And it sounds like your income would be to high to claim a current loss on rental property. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by brew.one on May 20, 2009, 11:22 am Please log in for more thread options although no one else has picked up on this (and maybe I'm all wet), I strongly advise that you get help from an EA or other tax professional in regard to your accounting method. In a previous post, you told us you were "choosing" not to use m-t-m in 2007--now you indicate that you will use m-t-m to claim a large loss against ordinary income. Changes in accounting methods must be applied for in advance and approved by the IRS. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Katie on May 19, 2009, 2:55 pm Please log in for more thread options > I am a high-earning US citizen in Australia; I am paying about AU > $100,000 in taxes this year. I assume I can take this AU$100,000, > about US$73,000, and keep it as ca carry over for 10 years against any > US taxes I might owe, right? > > What, if because of losses on rental property, and tax-deferred > contributions, and M-T-M futures, FX and options losses, I have no US > income. Or I only owe, say US$10,000 in US taxes. I get to carry over > US$63,000 in a US tax credit. right? > > Okay, now what if I come back to the states on Dec. 31, permanently. > Can I still use my US$63,000 carry over for US taxes? > > Someone told me that I can only use this carry over IF I also have > foreign income for that same tax year, which means you lose your carry > over pretty much when you come home -- if you don't go abroad again. > This can't be true can it? Please tell me I can use this, > hypothetical, US$63,000 carry over for up to 10 years in the States > even if I never earn another buck abroad. > > -- I think your "someone" is right. The purpose of the foreign tax credit is to offset the US tax on foreign source income -- not the US tax on US source income. There is now a one-year carryback and 10- year carryforward of unused foreign tax credits; however, under IRC Sec 904, the credit claimed in any taxable year cannot exceed the proportion of the US tax liability for that year that arises from foreign source income. Katie in San Diego -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by adwagner on May 19, 2009, 4:20 pm Please log in for more thread options > Someone told me that I can only use this carry over IF I also have > foreign income for that same tax year, which means you lose your carry > over pretty much when you come home -- if you don't go abroad again. > This can't be true can it? Please tell me I can use this, > hypothetical, US$63,000 carry over for up to 10 years in the States > even if I never earn another buck abroad. > You don't have to go abroad to have "foreign earned income" once you are back in the States. You have to earn the income while abroad, and have it taxed when you are living in the States. I am not a practicing CPA, but I could make a strong case for including part of the distributions from your tax deferred plans. You earned the money while overseas, and you are taxed on it when you take distributions later in the US. You will have to do some allocating - how much was deferred while here in the States vs. how much was deferred while living overseas - and you may only be able to claim the principal that you deposited into the tax deferred plan. In your situation, I would look to see whether you can take any distributions from your tax deferred plans within the next 10 years. You may feel that taking early distributions is not necessary, but if you can do so with zero tax.....then it may make a lot of sense. If you received restricted stock or stock options while abroad, you may be in luck. If you exercise your options while in the USA, that gain may qualify as foreign source income. Same thing applies to the income from having your restricted shares lapse while in the USA. Best wishes. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted Foreign Tax Credit for Dividends from Foreign Stock Index Fund February 2, 2010, 11:35 pm Foreign Earned Income Exclusion & Foreign Tax Credit May 21, 2008, 9:29 am Foreign Income Exclusion vs. Foreign Tax Credit March 25, 2007, 12:07 pm Foreign Tax Credit & Foreign Income Exclusion June 3, 2008, 9:35 am AMT foreign tax credit June 8, 2006, 2:22 pm Foreign Tax Credit October 16, 2008, 3:09 pm Foreign Tax Credit on divs March 25, 2007, 12:07 pm Foreign Tax Credit worksheet June 5, 2007, 3:20 pm Foreign Tax Credit Carryover March 12, 2009, 2:55 pm Foreign tax credit from Form 1116 March 15, 2007, 1:28 am