Foreign Tax Credit

[chancecody 125]

Hi Everyone,

 

Hoping someone can clarify this for me. Hypothetically, let's say a Canadian taxpayer paid $30K in Income Tax to Canada Revenue Agency in 2021 but received a $25K refund because the taxpayer maximized all deductions through credits. Technically, the taxpayer still paid $30K in Income Tax that is imposed by the foreign country. Does the taxpayer enter $30K to get a foreign tax credit with the IRS? OR, since the taxpayer got a refund by maximizing deductions, is it $5K to be entered as the foreign tax credit?

 

I read the Publication 3x and I guess it is open to interpretation so I'd like to get feedback from members who already filed with IRS before. Thanks!

 

 

https://www.irs.gov/individuals/international-taxpayers/foreign-taxes-that-qualify-for-the-foreign-tax-credit

 

[Crazy Cat 41,895]

54 minutes ago, chancecody said:

but received a $25K refund because the taxpayer maximized all deductions through credits. Technically, the taxpayer still paid $30K in Income Tax

That isn't how I see it. You paid $5000 in taxes.  You didn't pay more than your tax liability....which was $5000.

Edited April 16, 2022 by Crazy Cat

[P055UM 281]

7 minutes ago, Crazy Cat said:

That isn't how I see it. You paid $5000 in taxes.  You didn't pay more than your tax liability.

Seconded

[chancecody 125]

Thank you both! 

 

May be another silly question---> Do I report the Total Gross Income in Canada as the foreign income or the Adjusted Gross Income (Canada calls it "Taxable Income"). Example $10K Gross Income but taxable income is only $5K.

[Wuozopo 4,293]

32 minutes ago, chancecody said:

Thank you both! 

 

May be another silly question---> Do I report the Total Gross Income in Canada as the foreign income or the Adjusted Gross Income (Canada calls it "Taxable Income"). Example $10K Gross Income but taxable income is only $5K.

Gross income. 

[Wuozopo 4,293]

@chancecody

 

You can also use the Foreign Earned Income Exclusion form 2555 as another method of avoiding double taxation. Try both and use the one that gives you the best benefit. 

[chancecody 125]

23 hours ago, Wuozopo said:

@chancecody

 

You can also use the Foreign Earned Income Exclusion form 2555 as another method of avoiding double taxation. Try both and use the one that gives you the best benefit. 

Thank you everyone for the help. You saved me a huge potential tax bill down the road 🤣 My accountant told me to enter exactly what is on the T4 for the Income Tax deducted (Canada's version of W2) even after I told him that I got a refund because I maximized my deduction in my Canadian taxes. I had a gut feeling that was wrong. He said it is the T4 or W2 that you give if IRS asks for proof.