Foreign Tax Credit Confusion

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Sarah1
Posts: 3
Joined: Wed Sep 23, 2020 2:44 pm

Foreign Tax Credit Confusion

Post by Sarah1 » Wed Sep 23, 2020 2:50 pm

Hi Nelsona,

I’m a dual Canadian/US citizen and former resident of Canada. I’m now living in the US with my husband who is a US citizen and US resident. I’ve been straddling the border and filing as a resident of Canada for a few years (we plan to move to Canada very soon). I know, this is not recommended and I should have filed a departure return when I left Canada, but here we are.

We are filing a joint return in the US and I’m filing a resident return in Canada. My husband is filing a non-resident return in Canada (he earned some Canadian employment income as a cross border commuter for the first time).

I’ve read some good posts on here and understand I need to allocate my income and taxes between my husband and I on our 1040 to determine how much foreign tax I can claim in Canada. I’ve taken my W2 income dividend by our total federal adjusted gross income (let’s call it 50% for simplicity). Now I just need to multiply this by the tax on line 12a from 1040 correct?

This is the first year my husband has foreign tax credits, it’s normally just me, which is confusing me. I need to multiply the 50% by the tax on line 12a and not our total tax on line 16, right? This is because both of our foreign tax credits are deducted on line 13b and it would become a “circular calculation”.

Because we both had foreign income from Canada and foreign tax credits on our 1040 this year, do I reduce line 12a by his foreign tax credits because they don’t pertain to me. Or am I still ok to use the full amount on line 12a? Maybe I’m over thinking this?

Please help I’m really struggling with this.

nelsona
Posts: 16549
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Foreign Tax Credit Confusion

Post by nelsona » Fri Sep 25, 2020 9:13 am

Which credut are you trying to clculate, the 1116 form, or the line on your Cdn tax return.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Sarah1
Posts: 3
Joined: Wed Sep 23, 2020 2:44 pm

Re: Foreign Tax Credit Confusion

Post by Sarah1 » Fri Sep 25, 2020 10:28 am

I'm trying to figure out how much foreign tax I can claim on my Canadian resident return.

I've taken my W2 divided by our total adjusted gross income to determine my proportion of our total income on our joint 1040. I'm just not sure what I multiply this number by.

Do I multiply it by the total tax for both of us on line 12a BEFORE the deduction for BOTH of our foreign tax credits?

Or option 2, do I first need to reduce our total tax on line 12a by only my husbands foreign tax credits and then multiply?

In the past I've always just used the amount on line 12a before my own foreign tax credits are deducted.

This year my husband has foreign tax credits as well, which is confusing me.

Any help would be truly appreciated.

nelsona
Posts: 16549
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Foreign Tax Credit Confusion

Post by nelsona » Sun Sep 27, 2020 8:17 pm

Principle: In either country, you perform the foreign tax credit calculation BEFORE applying the foreign tax credit (FTC). But you do have to apply any other credits (child tax credit, etc) before making the calculation Then you put the FTC on each reurn and that is it, no "iterations" needed.

Since you are reporting as a Cdn resident (wrongly, as you say but that is another issue), then you are of course reporting ALL your income on your Cdn return, not just US wages. So whatever US income you made, are being reported on your CDn return, right?

So whatever ratio your US income is in relation to your joint AGI, that will be the ratio of IRA taxes you include towards the foreign tax credit on the CDn return, plus your FICA taxes charged against your wages.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Sarah1
Posts: 3
Joined: Wed Sep 23, 2020 2:44 pm

Re: Foreign Tax Credit Confusion

Post by Sarah1 » Sun Sep 27, 2020 8:44 pm

Ok, thank you very much.

Yes, I'm reporting worldwide income in Canada.

Thanks for clarifying this. I guess I was just over thinking it because we both had foreign tax credits to claim on our joint 1040 and not just me.

Have a good night

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