My problem is that the Foreign Tax Credit (Form 1116) as computed by TaxAct Online came to only $1000 and change, not a dollar-for-dollar credit she paid to her foreign country. ======>>>>>>>>>. In many cases, foreign social security payments are taxable by the country making the payments. Unless specified otherwise in an income tax treaty, foreign social security pensions are generally taxed as if they were foreign pensions or foreign annuities. Unless a tax treaty allows it , they are not eligible for exclusion from taxable income the way a U.S. social security pension might be. however, you can recoup that cost on your tax return ;as a us resident who pay income tax to a foreign country can use that expense take a credit against your US federal income tax. Alternatively, you could take an itemized deduction on sch a line 8 for the foreign tax payment. You might get a better tax break to write off thru the foreign tax credit.
Tax credits cut your tax bill dollar for dollar because you subtract them directly from the final tax you owe. That means a credit for $100 paid in foreign taxes will drop your $2k tax bill to $1.9k. In most cases, it's to your advantage to claim your international tax payments as a foreign tax credit on your tax return.
Of course, as is often the case with taxes, it's not always that simple. The tax credit entry on Form 1040 line 51 instructs you to "Attach Form 1116 if required." Although only two pages, its 33 lines (plus additional alphabetical sublines) require detailed entries about your investment and taxes.
The instructions are no better, with references to foreign source gross income, currency conversions and foreign tax credit redeterminations. A quick look at the form1116 is enough to make most taxpayers forget about the relative advantages of credits over deductions.The IRS actually gives smaller a break. Generally, if your foreign taxes are $300 or less (twice that for married couples filing jointly), you can ignore Form 1116.
In other words, on our $45000 AGI family-of-3 income in 2014, the IRS wants to take out some $3000 more on my spouse's already-taxed retirement pension!! (The refund we were getting was $5000+ before keying in my spouse's income information, which dropped to $1970 after keying it in!)
Could TaxAct be calculating this correctly, or am I feeding the interview the wrong answers?===>>>>>>>>>>>>.I guess so; tax return software can handle a variety of tax returns. However, you need some technical help from a software vendor for more accurate help/info |