1116 foreign taxes accrued vs. paid

dorins · Post by **dorins** » Thu Feb 25, 2010 9:44 pm

I am trying to find a way to use taxes accrued in 2009 as tax credits, instead of using actual taxes paid in 2009 as tax deductions on Schedule A.
Any reason I cannot use form 1116 and show taxes accrued (i.e. owed)?
I would show taxes owed in Canada based on US income (without any foreign taxes). This should lower considerably my US tax burden allowing for some RRSP tactics.

As it is now, using Schedule A, it seems my US taxes are higher than what I would pay in Canada for the same income (husband and wife working in MI). I cannot lower the taxes under the Ontario Health Premium, even if I contribute $20,000 to my RRSP!!

Thank you

nelsona · Post by **nelsona** » Thu Feb 25, 2010 10:04 pm

You can elect either taxes paid or accrued for form 1116.

dorins · Post by **dorins** » Thu Feb 25, 2010 10:09 pm

So in this case on 1116 I can actually show taxes accrued in 2009 calculated from US income but not taking into account US taxes.
This would then feed Line 47 Foreign Tax Credit from the 1040 Proforma.
This would generate a MUCH lower US tax rate than my 1040NR - lower than I can get by just using Schedule A deductions for taxes PAID.

Then I use this US tax paid (less refund if any) into my Cdn return and finalize it.

Is this correct?

dorins · Post by **dorins** » Thu Feb 25, 2010 10:27 pm

Somehow that doesn't make sense :-(
I tried to simulate this, and it essentially made my 1040 proforma tax rate "0", which would mean I am claiming all US taxes withheld back, so I can only owe Canadian taxes. I would like that, but I must be doing something wrong here.

nelsona · Post by **nelsona** » Thu Feb 25, 2010 10:28 pm

On a pro forma, you cannot use 1116.