Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Filing State Income Taxes

1040zIncome TaxesState TaxsH & R BlockH&r Block Printable Coupon2010 1040 Tax FormHow Do I Amend My 2012 Tax ReturnAmended 2010 Tax ReturnTax Forms For 2009Forms For 2012 Income TaxHow To File Amended Tax ReturnAmend Tax Return OnlineI Need To File My 2012 Taxes For FreeFile 1040ezFile 1040nr Ez OnlineFree 1040ez Tax ReturnHow Can I Amend My 2012 Tax Return1040formWww FreetaxusaFile For A Tax Extension Free1040nr Ez InstructionsState Income Tax Filing1040x 2012H&r Block Federal FreeFile 2012 Tax ReturnForm 1040ez Instructions2010 Tax FormTax Form For 20121040 Ez OnlineTax Planning Us 1040x1040nr Tax FormEfile 1040ezFree Tax ReturnsEfile 1040nr Ez 540nr ShortState Tax Filing Free1040 Ez 2010 PdfHelp Back TaxesWhere Can I Get State Tax FormsHow To File An Amended Return For 20132010 Tax Form

Filing State Income Taxes

Filing state income taxes Publication 514 - Main Content Table of Contents Choosing To Take Credit or DeductionChoice Applies to All Qualified Foreign Taxes Making or Changing Your Choice Why Choose the Credit?Credit for Taxes Paid or Accrued Foreign Currency and Exchange Rates Foreign Tax Redetermination Who Can Take the Credit?U. Filing state income taxes S. Filing state income taxes Citizens Resident Aliens Nonresident Aliens What Foreign Taxes Qualify for the Credit?Tax Must Be Imposed on You You Must Have Paid or Accrued the Tax Tax Must Be the Legal and Actual Foreign Tax Liability Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) Foreign Taxes for Which You Cannot Take a CreditTaxes on Excluded Income Taxes for Which You Can Only Take an Itemized Deduction Taxes on Foreign Mineral Income Taxes From International Boycott Operations Taxes on Combined Foreign Oil and Gas Income Taxes of U. Filing state income taxes S. Filing state income taxes Persons Controlling Foreign Corporations and Partnerships Taxes Related to a Foreign Tax Credit Splitting Event How To Figure the CreditLimit on the Credit Separate Limit Income Allocation of Foreign Taxes Foreign Taxes From a Partnership or an S Corporation Figuring the Limit Qualified Dividends Capital Gains and Losses Allocation of Foreign and U. Filing state income taxes S. Filing state income taxes Losses Tax Treaties Carryback and CarryoverTime Limit on Tax Assessment Claim for Refund Taxes All Credited or All Deducted Married Couples How To Claim the CreditForm 1116 Records To Keep Simple Example — Filled-In Form 1116Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Comprehensive Example — Filled-In Form 1116Foreign earned income. Filing state income taxes Employee business expenses. Filing state income taxes Forms 1116 Computation of Taxable Income Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Unused Foreign Taxes How To Get Tax HelpLow Income Taxpayer Clinics Choosing To Take Credit or Deduction You can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. Filing state income taxes You can change your choice for each year's taxes. Filing state income taxes To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. Filing state income taxes S. Filing state income taxes tax return. Filing state income taxes However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. Filing state income taxes See How To Figure the Credit , later. Filing state income taxes To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. Filing state income taxes Figure your tax both ways—claiming the credit and claiming the deduction. Filing state income taxes Then fill out your return the way that benefits you more. Filing state income taxes See Why Choose the Credit, later. Filing state income taxes Choice Applies to All Qualified Foreign Taxes As a general rule, you must choose to take either a credit or a deduction for all qualified foreign taxes. Filing state income taxes If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. Filing state income taxes You cannot deduct any of them. Filing state income taxes Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. Filing state income taxes You cannot take a credit for any of them. Filing state income taxes See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. Filing state income taxes There are exceptions to this general rule, which are described next. Filing state income taxes Exceptions for foreign taxes not allowed as a credit. Filing state income taxes   Even if you claim a credit for other foreign taxes, you can deduct any foreign tax that is not allowed as a credit if: You paid the tax to a country for which a credit is not allowed because it provides support for acts of international terrorism, or because the United States does not have or does not conduct diplomatic relations with it or recognize its government and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act, You paid withholding tax on dividends from foreign corporations whose stock you did not hold for the required period of time, You paid withholding tax on income or gain (other than dividends) from property you did not hold for the required period of time, You paid withholding tax on income or gain to the extent you had to make related payments on positions in substantially similar or related property, You participated in or cooperated with an international boycott, You paid taxes in connection with the purchase or sale of oil or gas, or You paid or accrued taxes on income or gain in connection with a covered asset acquisition. Filing state income taxes Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. Filing state income taxes S. Filing state income taxes tax purposes. Filing state income taxes For more information, see Internal Revenue Code section 901(m). Filing state income taxes The IRS intends to issue guidance that will explain this provision in greater detail. Filing state income taxes   For more information on these items, see Taxes for Which You Can Only Take an Itemized Deduction , later, under Foreign Taxes for Which You Cannot Take a Credit. Filing state income taxes Foreign taxes that are not income taxes. Filing state income taxes   In most cases, only foreign income taxes qualify for the foreign tax credit. Filing state income taxes Other taxes, such as foreign real and personal property taxes, do not qualify. Filing state income taxes But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. Filing state income taxes   In most cases, you can deduct these other taxes only if they are expenses incurred in a trade or business or in the production of income. Filing state income taxes However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). Filing state income taxes Carrybacks and carryovers. Filing state income taxes   There is a limit on the credit you can claim in a tax year. Filing state income taxes If your qualified foreign taxes exceed the credit limit, you may be able to carry over or carry back the excess to another tax year. Filing state income taxes If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. Filing state income taxes That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. Filing state income taxes   For more information on the limit, see How To Figure the Credit , later. Filing state income taxes For more information on carrybacks and carryovers, see Carryback and Carryover , later. Filing state income taxes Making or Changing Your Choice You can make or change your choice to claim a deduction or credit at any time during the period within 10 years from the regular due date for filing the return (without regard to any extension of time to file) for the tax year in which the taxes were actually paid or accrued. Filing state income taxes You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. Filing state income taxes Example. Filing state income taxes You paid foreign taxes for the last 13 years and chose to deduct them on your U. Filing state income taxes S. Filing state income taxes income tax returns. Filing state income taxes You were timely in both filing your returns and paying your U. Filing state income taxes S. Filing state income taxes tax liability. Filing state income taxes In February 2013, you file an amended return for tax year 2002 choosing to take a credit for your 2002 foreign taxes because you now realize that the credit is more advantageous than the deduction for that year. Filing state income taxes Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). Filing state income taxes Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. Filing state income taxes Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. Filing state income taxes If you are unable to claim all of them in those 2 years, you carry them forward to the 10 years following the year in which they arose. Filing state income taxes Because you originally chose to deduct your foreign taxes and the 10-year period for changing the choice for 2000 and 2001 has passed, you cannot change your choice and carry the unused 2002 foreign taxes back to tax years 2000 and 2001. Filing state income taxes Because the 10-year periods for changing the choice have not passed for your 2003 through 2012 income tax returns, you can still choose to claim the credit for those years and carry forward any unused 2002 foreign taxes. Filing state income taxes However, you must reduce the unused 2002 foreign taxes that you carry forward by the amount that would have been allowed as a carryback if you had timely carried back the foreign tax to tax years 2000 and 2001. Filing state income taxes You cannot take a credit or a deduction for foreign taxes paid on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. Filing state income taxes See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. Filing state income taxes Why Choose the Credit? The foreign tax credit is intended to relieve you of a double tax burden when your foreign source income is taxed by both the United States and the foreign country. Filing state income taxes In most cases, if the foreign tax rate is higher than the U. Filing state income taxes S. Filing state income taxes rate, there will be no U. Filing state income taxes S. Filing state income taxes tax on the foreign income. Filing state income taxes If the foreign tax rate is lower than the U. Filing state income taxes S. Filing state income taxes rate, U. Filing state income taxes S. Filing state income taxes tax on the foreign income will be limited to the difference between the rates. Filing state income taxes The foreign tax credit can only reduce U. Filing state income taxes S. Filing state income taxes taxes on foreign source income; it cannot reduce U. Filing state income taxes S. Filing state income taxes taxes on U. Filing state income taxes S. Filing state income taxes source income. Filing state income taxes Although no one rule covers all situations, in most cases it is better to take a credit for qualified foreign taxes than to deduct them as an itemized deduction. Filing state income taxes This is because: A credit reduces your actual U. Filing state income taxes S. Filing state income taxes income tax on a dollar-for-dollar basis, while a deduction reduces only your income subject to tax, You can choose to take the foreign tax credit even if you do not itemize your deductions. Filing state income taxes You then are allowed the standard deduction in addition to the credit, and If you choose to take the foreign tax credit, and the taxes paid or accrued exceed the credit limit for the tax year, you may be able to carry over or carry back the excess to another tax year. Filing state income taxes (See Limit on credit under How To Figure the Credit, later. Filing state income taxes ) Example 1. Filing state income taxes For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. Filing state income taxes None of the dividends are qualified dividends. Filing state income taxes You file a joint return and can claim two $3,900 exemptions. Filing state income taxes You had to pay $2,000 in foreign income taxes on the dividend income. Filing state income taxes If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. Filing state income taxes Your taxable income then is $57,500 and your tax is $7,736. Filing state income taxes If you take the credit instead, your itemized deductions are only $13,000. Filing state income taxes Your taxable income then is $59,500 and your tax before the credit is $8,036. Filing state income taxes After the credit, however, your tax is only $6,036. Filing state income taxes Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. Filing state income taxes Example 2. Filing state income taxes In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. Filing state income taxes You report on your U. Filing state income taxes S. Filing state income taxes return this income as well as $56,000 of U. Filing state income taxes S. Filing state income taxes source wages and an allowable $49,000 partnership loss from a U. Filing state income taxes S. Filing state income taxes partnership. Filing state income taxes Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. Filing state income taxes You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. Filing state income taxes If you deduct the foreign tax on your U. Filing state income taxes S. Filing state income taxes return, your taxable income is a negative $250 ($5,000 + $56,000 − $49,000 − $1,500 − $6,850 − $3,900) and your tax is $0. Filing state income taxes If you take the credit instead, your taxable income is $1,250 ($5,000 + $56,000 − $49,000 − $3,900 − $6,850) and your tax before the credit is $126. Filing state income taxes You can take a credit of only $113 because of limits discussed later. Filing state income taxes Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. Filing state income taxes If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). Filing state income taxes When deciding whether to take the credit or the deduction this year, you will need to consider whether you can benefit from a carryback or carryover of that unused foreign tax. Filing state income taxes Credit for Taxes Paid or Accrued You can claim the credit for a qualified foreign tax in the tax year in which you pay it or accrue it, depending on your method of accounting. Filing state income taxes “Tax year” refers to the tax year for which your U. Filing state income taxes S. Filing state income taxes return is filed, not the tax year for which your foreign return is filed. Filing state income taxes Accrual method of accounting. Filing state income taxes   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. Filing state income taxes You are using an accrual method of accounting if you report income when you earn it, rather than when you receive it, and you deduct your expenses when you incur them, rather than when you pay them. Filing state income taxes   In most cases, foreign taxes accrue when all the events have taken place that fix the amount of the tax and your liability to pay it. Filing state income taxes Generally, this occurs on the last day of the tax year for which your foreign return is filed. Filing state income taxes Contesting your foreign tax liability. Filing state income taxes   If you are contesting your foreign tax liability, you cannot accrue it and take a credit until the amount of foreign tax due is finally determined. Filing state income taxes However, if you choose to pay the tax liability you are contesting, you can take a credit for the amount you pay before a final determination of foreign tax liability is made. Filing state income taxes Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. Filing state income taxes If the amount of foreign taxes taken as a credit differs from the final foreign tax liability, you may have to adjust the credit, as discussed later under Foreign Tax Redetermination . Filing state income taxes You may have to post a bond. Filing state income taxes   If you claim a credit for taxes accrued but not paid, you may have to post an income tax bond to guarantee your payment of any tax due in the event the amount of foreign tax paid differs from the amount claimed. Filing state income taxes   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. Filing state income taxes Cash method of accounting. Filing state income taxes   If you use the cash method of accounting, you can choose to take the credit either in the year you pay the tax or in the year you accrue it. Filing state income taxes You are using the cash method of accounting if you report income in the year you actually or constructively receive it, and deduct expenses in the year you pay them. Filing state income taxes Choosing to take credit in the year taxes accrue. Filing state income taxes   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. Filing state income taxes You make the choice by checking the box in Part II of Form 1116. Filing state income taxes Once you make that choice, you must follow it in all later years and take a credit for foreign taxes in the year they accrue. Filing state income taxes   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. Filing state income taxes You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. Filing state income taxes   If you make the choice to take the credit when foreign taxes accrue and pay them in a later year, you cannot claim a deduction for any part of the previously accrued taxes. Filing state income taxes Credit based on taxes paid in earlier year. Filing state income taxes   If, in earlier years, you took the credit based on taxes paid, and this year you choose to take the credit based on taxes accrued, you may be able to take the credit this year for taxes from more than one year. Filing state income taxes Example. Filing state income taxes Last year you took the credit based on taxes paid. Filing state income taxes This year you chose to take the credit based on taxes accrued. Filing state income taxes During the year you paid foreign income taxes owed for last year. Filing state income taxes You also accrued foreign income taxes for this year that you did not pay by the end of the year. Filing state income taxes You can base the credit on your return for this year on both last year's taxes that you paid and this year's taxes that you accrued. Filing state income taxes Foreign Currency and Exchange Rates U. Filing state income taxes S. Filing state income taxes income tax is imposed on income expressed in U. Filing state income taxes S. Filing state income taxes dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. Filing state income taxes Therefore, fluctuations in the value of the foreign currency relative to the U. Filing state income taxes S. Filing state income taxes dollar may affect the foreign tax credit. Filing state income taxes Translating foreign currency into U. Filing state income taxes S. Filing state income taxes dollars. Filing state income taxes   If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U. Filing state income taxes S. Filing state income taxes dollars. Filing state income taxes How and when you do this depends on your functional currency. Filing state income taxes In most cases, your functional currency is the U. Filing state income taxes S. Filing state income taxes dollar unless you are required to use the currency of a foreign country. Filing state income taxes   You must make all federal income tax determinations in your functional currency. Filing state income taxes The U. Filing state income taxes S. Filing state income taxes dollar is the functional currency for all taxpayers except some qualified business units. Filing state income taxes A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. Filing state income taxes Unless you are self-employed, your functional currency is the U. Filing state income taxes S. Filing state income taxes dollar. Filing state income taxes   Even if you are self-employed and have a qualified business unit, your functional currency is the U. Filing state income taxes S. Filing state income taxes dollar if any of the following apply. Filing state income taxes You conduct the business primarily in dollars. Filing state income taxes The principal place of business is located in the United States. Filing state income taxes You choose to or are required to use the dollar as your functional currency. Filing state income taxes The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted. Filing state income taxes   If your functional currency is the U. Filing state income taxes S. Filing state income taxes dollar, you must immediately translate into dollars all items of income, expense, etc. Filing state income taxes , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. Filing state income taxes If there is more than one exchange rate, use the one that most properly reflects your income. Filing state income taxes In most cases, you can get exchange rates from banks and U. Filing state income taxes S. Filing state income taxes Embassies. Filing state income taxes   If your functional currency is not the U. Filing state income taxes S. Filing state income taxes dollar, make all income tax determinations in your functional currency. Filing state income taxes At the end of the year, translate the results, such as income or loss, into U. Filing state income taxes S. Filing state income taxes dollars to report on your income tax return. Filing state income taxes    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. Filing state income taxes   Use the rate of exchange in effect on the date you paid the foreign taxes to the foreign country unless you meet the exception discussed next. Filing state income taxes If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. Filing state income taxes If you make foreign estimated tax payments, you use the rate of exchange in effect for the date on which you made the estimated tax payment. Filing state income taxes   The exchange rate rules discussed here apply even if the foreign taxes are paid or accrued with respect to a foreign tax credit splitting event (discussed later). Filing state income taxes Exception. Filing state income taxes   If you claim the credit for foreign taxes on an accrual basis, in most cases you must use the average exchange rate for the tax year to which the taxes relate. Filing state income taxes This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. Filing state income taxes The foreign taxes are paid on or after the first day of the tax year to which they relate. Filing state income taxes The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. Filing state income taxes The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). Filing state income taxes (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. Filing state income taxes )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. Filing state income taxes Election to use exchange rate on date paid. Filing state income taxes   If you have accrued foreign taxes that you are otherwise required to convert using the average exchange rate, you may elect to use the exchange rate in effect on the date the foreign taxes are paid if the taxes are denominated in a nonfunctional foreign currency. Filing state income taxes If any of the accrued taxes are unpaid, you must translate them into U. Filing state income taxes S. Filing state income taxes dollars using the exchange rate on the last day of the U. Filing state income taxes S. Filing state income taxes tax year to which those taxes relate. Filing state income taxes You may make the election for all nonfunctional currency foreign income taxes or only those nonfunctional currency foreign income taxes that are attributable to qualified business units with a U. Filing state income taxes S. Filing state income taxes dollar functional currency. Filing state income taxes Once made, the election applies to the tax year for which made and all subsequent tax years unless revoked with the consent of the IRS. Filing state income taxes The election is available for tax years beginning after 2004. Filing state income taxes It must be made by the due date (including extensions) for filing the tax return for the first tax year to which the election applies. Filing state income taxes Make the election by attaching a statement to the applicable tax return. Filing state income taxes The statement must identify whether the election is made for all foreign taxes or only for foreign taxes attributable to qualified business units with a U. Filing state income taxes S. Filing state income taxes dollar functional currency. Filing state income taxes Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. Filing state income taxes S. Filing state income taxes foreign tax credit claimed. Filing state income taxes The year in which to claim the credit remains the year to which the foreign taxes paid or accrued relate, even if the change in foreign tax liability occurs in a later year. Filing state income taxes If a foreign tax redetermination occurs, a redetermination of your U. Filing state income taxes S. Filing state income taxes tax liability is required if any of the following conditions apply. Filing state income taxes The accrued taxes when paid differ from the amounts claimed as a credit. Filing state income taxes The accrued taxes you claimed as a credit in one tax year are not paid within 2 years after the end of that tax year. Filing state income taxes If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. Filing state income taxes You will not be allowed a credit for the unpaid taxes until you pay them. Filing state income taxes When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. Filing state income taxes S. Filing state income taxes dollars using the exchange rate as of the date they were paid. Filing state income taxes The foreign tax credit is allowed for the year to which the foreign tax relates. Filing state income taxes See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. Filing state income taxes The foreign taxes you paid are refunded in whole or in part. Filing state income taxes For taxes taken into account when accrued but translated into dollars on the date of payment, the dollar value of the accrued tax differs from the dollar value of the tax paid because of fluctuations in the exchange rate between the date of accrual and the date of payment. Filing state income taxes However, no redetermination is required if the change in foreign tax liability for each foreign country is solely attributable to exchange rate fluctuations and is less than the smaller of: $10,000, or 2% of the total dollar amount of the foreign tax initially accrued for that foreign country for the U. Filing state income taxes S. Filing state income taxes tax year. Filing state income taxes In this case, you must adjust your U. Filing state income taxes S. Filing state income taxes tax in the tax year in which the accrued foreign taxes are paid. Filing state income taxes Notice to the Internal Revenue Service (IRS) of Redetermination You are required to notify the IRS about a foreign tax credit redetermination that affects your U. Filing state income taxes S. Filing state income taxes tax liability for each tax year affected by the redetermination. Filing state income taxes In most cases, you must file Form 1040X, Amended U. Filing state income taxes S. Filing state income taxes Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. Filing state income taxes S. Filing state income taxes tax liability for the year or years affected. Filing state income taxes See Contents of statement , later. Filing state income taxes You are not required to attach Form 1116 for a tax year affected by a redetermination if: The amount of your creditable taxes paid or accrued during the tax year is not more than $300 ($600 if married filing a joint return) as a result of the foreign tax redetermination, and You meet the requirements listed under Exemption from foreign tax credit limit under How To Figure the Credit, later. Filing state income taxes There are other exceptions to this requirement. Filing state income taxes They are discussed later under Due date of notification to IRS . Filing state income taxes Contents of statement. Filing state income taxes   The statement must include all of the following. Filing state income taxes Your name, address, and taxpayer identification number. Filing state income taxes The tax year or years that are affected by the foreign tax redetermination. Filing state income taxes The date or dates the foreign taxes were accrued, if applicable. Filing state income taxes The date or dates the foreign taxes were paid. Filing state income taxes The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. Filing state income taxes Information sufficient to determine any interest due from or owing to you, including the amount of any interest paid to you by the foreign government and the dates received. Filing state income taxes   In the case of any foreign taxes that were not paid before the date two years after the close of the tax year to which those taxes relate, you must provide the amount of those taxes in foreign currency and the exchange rate that was used to translate that amount when originally claimed as a credit. Filing state income taxes   If any foreign tax was refunded in whole or in part, you must provide the date and amount (in foreign currency) of each refund, the exchange rate that was used to translate each amount when originally claimed as a credit, and the exchange rate for the date the refund was received (for purposes of computing foreign currency gain or loss under Internal Revenue Code section 988). Filing state income taxes Due date of notification to IRS. Filing state income taxes   If you pay less foreign tax than you originally claimed a credit for, in most cases you must file a notification by the due date (with extensions) of your original return for your tax year in which the foreign tax redetermination occurred. Filing state income taxes There is no limit on the time the IRS has to redetermine and assess the correct U. Filing state income taxes S. Filing state income taxes tax due. Filing state income taxes If you pay more foreign tax than you originally claimed a credit for, you have 10 years to file a claim for refund of U. Filing state income taxes S. Filing state income taxes taxes. Filing state income taxes See Time Limit on Refund Claims , later. Filing state income taxes   Exceptions to this due date are explained in the next two paragraphs. Filing state income taxes Multiple redeterminations of U. Filing state income taxes S. Filing state income taxes tax liability for same tax year. Filing state income taxes   Where more than one foreign tax redetermination requires a redetermination of U. Filing state income taxes S. Filing state income taxes tax liability for the same tax year and those redeterminations occur in the same tax year or within two consecutive tax years, you can file for that tax year one notification (Form 1040X with a Form 1116 and the required statement) that reflects all those tax redeterminations. Filing state income taxes If you choose to file one notification, the due date for that notification is the due date of the original return (with extensions) for the year in which the first foreign tax redetermination that reduced your foreign tax liability occurred. Filing state income taxes However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. Filing state income taxes S. Filing state income taxes tax liability is required may occur after the due date for providing that notification. Filing state income taxes In this situation, you may have to file more than one Form 1040X for that tax year. Filing state income taxes Additional U. Filing state income taxes S. Filing state income taxes tax due eliminated by foreign tax credit carryback or carryover. Filing state income taxes   If a foreign tax redetermination requires a redetermination of U. Filing state income taxes S. Filing state income taxes tax liability that would otherwise result in an additional amount of U. Filing state income taxes S. Filing state income taxes tax due, but the additional tax is eliminated by a carryback or carryover of an unused foreign tax, you do not have to amend your tax return for the year affected by the redetermination. Filing state income taxes Instead, you can notify the IRS by attaching a statement to the original return for the tax year in which the foreign tax redetermination occurred. Filing state income taxes You must file the statement by the due date (with extensions) of that return. Filing state income taxes The statement must show the amount of the unused foreign taxes paid or accrued and a detailed schedule showing the computation of the carryback or carryover (including the amounts carried back or over to the year for which a redetermination on U. Filing state income taxes S. Filing state income taxes tax liability is required). Filing state income taxes Failure-to-notify penalty. Filing state income taxes   If you fail to notify the IRS of a foreign tax redetermination and cannot show reasonable cause for the failure, you may have to pay a penalty. Filing state income taxes   For each month, or part of a month, that the failure continues, you pay a penalty of 5% of the tax due resulting from a redetermination of your U. Filing state income taxes S. Filing state income taxes tax. Filing state income taxes This penalty cannot be more than 25% of the tax due. Filing state income taxes Foreign tax refund. Filing state income taxes   If you receive a foreign tax refund without interest from the foreign government, you will not have to pay interest on the amount of tax due resulting from the adjustment to your U. Filing state income taxes S. Filing state income taxes tax for the time before the date of the refund. Filing state income taxes   However, if you receive a foreign tax refund with interest, you must pay interest to the IRS up to the amount of the interest paid to you by the foreign government. Filing state income taxes The interest you must pay cannot be more than the interest you would have had to pay on taxes that were unpaid for any other reason for the same period. Filing state income taxes Interest also is owed from the time you receive a refund until you pay the additional tax due. Filing state income taxes Foreign tax imposed on foreign refund. Filing state income taxes   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. Filing state income taxes However, when you refigure the foreign tax credit taken for the original foreign tax, reduce the amount of the refund by the foreign tax paid on the refund. Filing state income taxes Example. Filing state income taxes You paid a foreign income tax of $3,000 in 2011, and received a foreign tax refund of $500 in 2013 on which a foreign tax of $100 was imposed. Filing state income taxes When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. Filing state income taxes Time Limit on Refund Claims You have 10 years to file a claim for refund of U. Filing state income taxes S. Filing state income taxes tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. Filing state income taxes The 10-year period begins the day after the regular due date for filing the return (without extensions) for the year in which the taxes were actually paid or accrued. Filing state income taxes You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. Filing state income taxes The 10-year period applies to claims for refund or credit based on: Fixing math errors in figuring qualified foreign taxes, Reporting qualified foreign taxes not originally reported on the return, or Any other change in the size of the credit (including one caused by correcting the foreign tax credit limit). Filing state income taxes The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. Filing state income taxes See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. Filing state income taxes Who Can Take the Credit? U. Filing state income taxes S. Filing state income taxes citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. Filing state income taxes S. Filing state income taxes tax on foreign source income may be able to take a foreign tax credit. Filing state income taxes U. Filing state income taxes S. Filing state income taxes Citizens If you are a U. Filing state income taxes S. Filing state income taxes citizen, you are taxed by the United States on your worldwide income wherever you live. Filing state income taxes You are normally entitled to take a credit for foreign taxes you pay or accrue. Filing state income taxes Resident Aliens If you are a resident alien of the United States, you can take a credit for foreign taxes subject to the same general rules as U. Filing state income taxes S. Filing state income taxes citizens. Filing state income taxes If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. Filing state income taxes Usually, you can take a credit only for those foreign taxes imposed on income you actually or constructively received while you had resident alien status. Filing state income taxes For information on alien status, see Publication 519. Filing state income taxes Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. Filing state income taxes However, you may be able to take the credit if: You were a bona fide resident of Puerto Rico during your entire tax year, or You pay or accrue tax to a foreign country or U. Filing state income taxes S. Filing state income taxes possession on income from foreign sources that is effectively connected with a trade or business in the United States. Filing state income taxes But if you must pay tax to a foreign country or U. Filing state income taxes S. Filing state income taxes possession on income from U. Filing state income taxes S. Filing state income taxes sources only because you are a citizen or a resident of that country or U. Filing state income taxes S. Filing state income taxes possession, do not use that tax in figuring the amount of your credit. Filing state income taxes For information on alien status and effectively connected income, see Publication 519. Filing state income taxes What Foreign Taxes Qualify for the Credit? In most cases, the following four tests must be met for any foreign tax to qualify for the credit. Filing state income taxes The tax must be imposed on you. Filing state income taxes You must have paid or accrued the tax. Filing state income taxes The tax must be the legal and actual foreign tax liability. Filing state income taxes The tax must be an income tax (or a tax in lieu of an income tax). Filing state income taxes Certain foreign taxes do not qualify for the credit even if the four tests are met. Filing state income taxes See Foreign Taxes for Which You Cannot Take a Credit, later. Filing state income taxes Tax Must Be Imposed on You You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U. Filing state income taxes S. Filing state income taxes possession. Filing state income taxes For example, a tax that is deducted from your wages is considered to be imposed on you. Filing state income taxes You cannot shift the right to claim the credit by contract or other means. Filing state income taxes Foreign country. Filing state income taxes   A foreign country includes any foreign state and its political subdivisions. Filing state income taxes Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. Filing state income taxes U. Filing state income taxes S. Filing state income taxes possessions. Filing state income taxes   For foreign tax credit purposes, all qualified taxes paid to U. Filing state income taxes S. Filing state income taxes possessions are considered foreign taxes. Filing state income taxes For this purpose, U. Filing state income taxes S. Filing state income taxes possessions include Puerto Rico and American Samoa. Filing state income taxes   When the term “foreign country” is used in this publication, it includes U. Filing state income taxes S. Filing state income taxes possessions unless otherwise stated. Filing state income taxes You Must Have Paid or Accrued the Tax In most cases, you can claim the credit only if you paid or accrued the foreign tax to a foreign country or U. Filing state income taxes S. Filing state income taxes possession. Filing state income taxes However, the paragraphs that follow describe some instances in which you can claim the credit even if you did not directly pay or accrue the tax yourself. Filing state income taxes Joint return. Filing state income taxes   If you file a joint return, you can claim the credit based on the total foreign income taxes paid or accrued by you and your spouse. Filing state income taxes Combined income. Filing state income taxes   If foreign tax is imposed on the combined income of two or more persons (for example, spouses), the tax is allocated among, and considered paid by, these persons on a pro rata basis in proportion to each person's portion of the combined income, as determined under foreign law and Regulations section 1. Filing state income taxes 901-2(f)(3)(iii). Filing state income taxes Combined income with respect to each foreign tax that is imposed on a combined basis (and combined income subject to tax exemption or preferential tax rates) is computed separately, and the tax on that combined income is allocated separately. Filing state income taxes   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. Filing state income taxes However, you can choose to apply the new rules to foreign taxes paid or accrued in tax years beginning after December 31, 2010, and before February 15, 2012. Filing state income taxes For more details, see paragraphs (f) and (h) of Regulations section 1. Filing state income taxes 901-2. Filing state income taxes For similar rules applicable to prior tax years, see Regulations section 1. Filing state income taxes 901-2 (revised as of April 1, 2011). Filing state income taxes Example. Filing state income taxes You and your spouse reside in Country X, which imposes income tax on your combined incomes. Filing state income taxes Both of you use the “u” as your functional currency. Filing state income taxes Country X apportions tax based on income. Filing state income taxes You had income of 30,000u and your spouse had income of 20,000u. Filing state income taxes Your filing status on your U. Filing state income taxes S. Filing state income taxes income tax return is married filing separately. Filing state income taxes You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. Filing state income taxes S income tax return. Filing state income taxes Your spouse can claim only 40% (20,000u/50,000u). Filing state income taxes Partner or S corporation shareholder. Filing state income taxes   If you are a member of a partnership, or a shareholder in an S corporation, you can claim the credit based on your proportionate share of the foreign income taxes paid or accrued by the partnership or the S corporation. Filing state income taxes These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. Filing state income taxes However, if you are a shareholder in an S corporation that in turn owns stock in a foreign corporation, you cannot claim a credit for your share of foreign taxes paid by the foreign corporation. Filing state income taxes Beneficiary. Filing state income taxes   If you are a beneficiary of an estate or trust, you may be able to claim the credit based on your proportionate share of foreign income taxes paid or accrued by the estate or trust. Filing state income taxes This amount will be shown on the Schedule K-1 you receive from the estate or trust. Filing state income taxes However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. Filing state income taxes Mutual fund shareholder. Filing state income taxes   If you are a shareholder of a mutual fund or other regulated investment company (RIC), you may be able to claim the credit based on your share of foreign income taxes paid by the fund if it chooses to pass the credit on to its shareholders. Filing state income taxes You should receive from the mutual fund or other RIC a Form 1099-DIV, or similar statement, showing your share of the foreign income, and your share of the foreign taxes paid. Filing state income taxes If you do not receive this information, you will need to contact the fund. Filing state income taxes Controlled foreign corporation shareholder. Filing state income taxes   If you are a shareholder of a controlled foreign corporation and choose to be taxed at corporate rates on the amount you must include in gross income from that corporation, you can claim the credit based on your share of foreign taxes paid or accrued by the controlled foreign corporation. Filing state income taxes If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. Filing state income taxes Controlled foreign corporation. Filing state income taxes   A controlled foreign corporation is a foreign corporation in which U. Filing state income taxes S. Filing state income taxes shareholders own more than 50% of the voting power or value of the stock. Filing state income taxes You are considered a U. Filing state income taxes S. Filing state income taxes shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. Filing state income taxes See Internal Revenue Code sections 951(b) and 958(b) for more information. Filing state income taxes Tax Must Be the Legal and Actual Foreign Tax Liability The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. Filing state income taxes Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. Filing state income taxes Foreign tax refund. Filing state income taxes   You cannot take a foreign tax credit for income taxes paid to a foreign country if it is reasonably certain the amount would be refunded, credited, rebated, abated, or forgiven if you made a claim. Filing state income taxes   For example, the United States has tax treaties with many countries allowing U. Filing state income taxes S. Filing state income taxes citizens and residents reductions in the rates of tax of those foreign countries. Filing state income taxes However, some treaty countries require U. Filing state income taxes S. Filing state income taxes citizens and residents to pay the tax figured without regard to the lower treaty rates and then claim a refund for the amount by which the tax actually paid is more than the amount of tax figured using the lower treaty rate. Filing state income taxes The qualified foreign tax is the amount figured using the lower treaty rate and not the amount actually paid, because the excess tax is refundable. Filing state income taxes Subsidy received. Filing state income taxes   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. Filing state income taxes This rule applies even if the subsidy is given to a person related to you, or persons who participated with you in a transaction or a related transaction. Filing state income taxes A subsidy can be provided by any means but must be determined, directly or indirectly, in relation to the amount of tax, or to the base used to figure the tax. Filing state income taxes   The term “subsidy” includes any type of benefit. Filing state income taxes Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. Filing state income taxes Shareholder receiving refund for corporate tax in integrated system. Filing state income taxes   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. Filing state income taxes You may be able to claim a refund of these taxes from the foreign government. Filing state income taxes You must include the refund (including any amount withheld) in your income in the year received. Filing state income taxes Any tax withheld from the refund is a qualified foreign tax. Filing state income taxes Example. Filing state income taxes You are a shareholder of a French corporation. Filing state income taxes You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. Filing state income taxes The French government imposes a 15% withholding tax ($15) on the refund you received. Filing state income taxes You receive a check for $85. Filing state income taxes You include $100 in your income. Filing state income taxes The $15 of tax withheld is a qualified foreign tax. Filing state income taxes Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) In most cases, only income, war profits, and excess profits taxes (income taxes) qualify for the foreign tax credit. Filing state income taxes Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. Filing state income taxes Furthermore, foreign taxes on income can qualify even though they are not imposed under an income tax law if the tax is in lieu of an income, war profits, or excess profits tax. Filing state income taxes See Taxes in Lieu of Income Taxes , later. Filing state income taxes Income Tax Simply because the levy is called an income tax by the foreign taxing authority does not make it an income tax for this purpose. Filing state income taxes A foreign levy is an income tax only if it meets both of the following requirements. Filing state income taxes It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. Filing state income taxes The predominant character of the tax is that of an income tax in the U. Filing state income taxes S. Filing state income taxes sense. Filing state income taxes A foreign levy may meet these requirements even if the foreign tax law differs from U. Filing state income taxes S. Filing state income taxes tax law. Filing state income taxes The foreign law may include in income items that U. Filing state income taxes S. Filing state income taxes law does not include, or it may allow certain exclusions or deductions that U. Filing state income taxes S. Filing state income taxes law does not allow. Filing state income taxes Specific economic benefit. Filing state income taxes   In most cases, you get a specific economic benefit if you receive, or are considered to receive, an economic benefit from the foreign country imposing the levy, and: If there is a generally imposed income tax, the economic benefit is not available on substantially the same terms to all persons subject to the income tax, or If there is no generally imposed income tax, the economic benefit is not available on substantially the same terms to the population of the foreign country in general. Filing state income taxes   You are considered to receive a specific economic benefit if you have a business transaction with a person who receives a specific economic benefit from the foreign country and, under the terms and conditions of the transaction, you receive directly or indirectly all or part of the benefit. Filing state income taxes   However, see the exception discussed later under Pension, unemployment, and disability fund payments . Filing state income taxes Economic benefits. Filing state income taxes   Economic benefits include the following. Filing state income taxes Goods. Filing state income taxes Services. Filing state income taxes Fees or other payments. Filing state income taxes Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. Filing state income taxes Discharges of contractual obligations. Filing state income taxes   In most cases, the right or privilege merely to engage in business is not an economic benefit. Filing state income taxes Dual-capacity taxpayers. Filing state income taxes   If you are subject to a foreign country's levy and you also receive a specific economic benefit from that foreign country, you are a “dual-capacity taxpayer. Filing state income taxes ” As a dual-capacity taxpayer, you cannot claim a credit for any part of the foreign levy, unless you establish that the amount paid under a distinct element of the foreign levy is a tax, rather than a compulsory payment for a direct or indirect specific economic benefit. Filing state income taxes    For more information on how to establish amounts paid under separate elements of a levy, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Pension, unemployment, and disability fund payments. Filing state income taxes   A foreign tax imposed on an individual to pay for retirement, old-age, death, survivor, unemployment, illness, or disability benefits, or for substantially similar purposes, is not payment for a specific economic benefit if the amount of the tax does not depend on the age, life expectancy, or similar characteristics of that individual. Filing state income taxes    No deduction or credit is allowed, however, for social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. Filing state income taxes For more information about these agreements, see Publication 54. Filing state income taxes Soak-up taxes. Filing state income taxes   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. Filing state income taxes A tax is a soak-up tax to the extent that liability for it depends on the availability of a credit for it against income tax imposed by another country. Filing state income taxes This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. Filing state income taxes Penalties and interest. Filing state income taxes   Amounts paid to a foreign government to satisfy a liability for interest, fines, penalties, or any similar obligation are not taxes and do not qualify for the credit. Filing state income taxes Taxes not based on income. Filing state income taxes   Foreign taxes based on gross receipts or the number of units produced, rather than on realized net income, do not qualify unless they are imposed in lieu of an income tax, as discussed next. Filing state income taxes Taxes based on assets, such as property taxes, do not qualify for the credit. Filing state income taxes Taxes in Lieu of Income Taxes A tax paid or accrued to a foreign country qualifies for the credit if it is imposed in lieu of an income tax otherwise generally imposed. Filing state income taxes A foreign levy is a tax in lieu of an income tax only if: It is not payment for a specific economic benefit as discussed earlier, and The tax is imposed in place of, and not in addition to, an income tax otherwise generally imposed. Filing state income taxes A tax in lieu of an income tax does not have to be based on realized net income. Filing state income taxes A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. Filing state income taxes In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. Filing state income taxes However, if the foreign country imposes a soak-up tax in lieu of an income tax, the amount that does not qualify for foreign tax credit is the lesser of the following amounts. Filing state income taxes The soak-up tax. Filing state income taxes The foreign tax you paid that is more than the amount you would have paid if you had been subject to the generally imposed income tax. Filing state income taxes Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. Filing state income taxes These are: Taxes on excluded income, Taxes for which you can only take an itemized deduction, Taxes on foreign mineral income, Taxes from international boycott operations, A portion of taxes on combined foreign oil and gas income, Taxes of U. Filing state income taxes S. Filing state income taxes persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. Filing state income taxes Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. Filing state income taxes S. Filing state income taxes gross income. Filing state income taxes Foreign Earned Income and Housing Exclusions You must reduce your foreign taxes available for the credit by the amount of those taxes paid or accrued on income that is excluded from U. Filing state income taxes S. Filing state income taxes income under the foreign earned income exclusion or the foreign housing exclusion. Filing state income taxes See Publication 54 for more information on the foreign earned income and housing exclusions. Filing state income taxes Wages completely excluded. Filing state income taxes   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. Filing state income taxes Wages partly excluded. Filing state income taxes   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. Filing state income taxes You find the amount allocable to your excluded wages by multiplying the foreign tax paid or accrued on foreign earned income received or accrued during the tax year by a fraction. Filing state income taxes   The numerator of the fraction is your foreign earned income and housing amounts excluded under the foreign earned income and housing exclusions for the tax year minus otherwise deductible expenses definitely related and properly apportioned to that income. Filing state income taxes Deductible expenses do not include the foreign housing deduction. Filing state income taxes   The denominator is your total foreign earned income received or accrued during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). Filing state income taxes If the foreign law taxes foreign earned income and some other income (for example, earned income from U. Filing state income taxes S. Filing state income taxes sources or a type of income not subject to U. Filing state income taxes S. Filing state income taxes tax), and the taxes on the other income cannot be segregated, the denominator of the fraction is the total amount of income subject to the foreign tax minus deductible expenses allocable to that income. Filing state income taxes Example. Filing state income taxes You are a U. Filing state income taxes S. Filing state income taxes citizen and a cash basis taxpayer, employed by Company X and living in Country A. Filing state income taxes Your records show the following: Foreign earned income received $125,000 Unreimbursed business travel expenses 20,000 Income tax paid to Country A 30,000 Exclusion of foreign earned  income and housing allowance 97,600     Because you can exclude part of your wages, you cannot claim a credit for part of the foreign taxes. Filing state income taxes To find that part, do the following. Filing state income taxes First, find the amount of business expenses allocable to excluded wages and therefore not deductible. Filing state income taxes To do this, multiply the otherwise deductible expenses by a fraction. Filing state income taxes That fraction is the excluded wages over your foreign earned income. Filing state income taxes   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. Filing state income taxes To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). Filing state income taxes The result is $81,984. Filing state income taxes Then, find the denominator of the fraction by subtracting all your deductible expenses from all your foreign earned income ($125,000 − $20,000 = $105,000). Filing state income taxes Finally, multiply the foreign tax you paid by the resulting fraction. Filing state income taxes   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. Filing state income taxes Taxes on Income From Puerto Rico Exempt From U. Filing state income taxes S. Filing state income taxes Tax If you have income from Puerto Rican sources that is not taxable, you must reduce your foreign taxes paid or accrued by the taxes allocable to the exempt income. Filing state income taxes For information on figuring the reduction, see Publication 570. Filing state income taxes Possession Exclusion If you are a bona fide resident of American Samoa and exclude income from sources in American Samoa, you cannot take a credit for the taxes you pay or accrue on the excluded income. Filing state income taxes For more information on this exclusion, see Publication 570. Filing state income taxes Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. Filing state income taxes However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. Filing state income taxes Taxes for Which You Can Only Take an Itemized Deduction You cannot claim a foreign tax credit for foreign income taxes paid or accrued under the following circumstances. Filing state income taxes However, you can claim an itemized deduction for these taxes. Filing state income taxes See Choosing To Take Credit or Deduction , earlier. Filing state income taxes Taxes Imposed By Sanctioned Countries (Section 901(j) Income) You cannot claim a foreign tax credit for income taxes paid or accrued to any country if the income giving rise to the tax is for a period (the sanction period) during which: The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism, The United States has severed or does not conduct diplomatic relations with the country, or The United States does not recognize the country's government, and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act. Filing state income taxes The following countries meet this description for 2013. Filing state income taxes Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. Filing state income taxes Cuba. Filing state income taxes Iran. Filing state income taxes Libya (but see Note later). Filing state income taxes North Korea. Filing state income taxes Sudan. Filing state income taxes Syria. Filing state income taxes Waiver of denial of the credit. Filing state income taxes   A waiver can be granted to a sanctioned country if the President of the United States determines that granting the waiver is in the national interest of the United States and will expand trade and investment opportunities for U. Filing state income taxes S. Filing state income taxes companies in the sanctioned country. Filing state income taxes The President must report to Congress his intentions to grant the waiver and his reasons for granting the waiver not less than 30 days before the date on which the waiver is granted. Filing state income taxes Note. Filing state income taxes Effective December 10, 2004, the President granted a waiver to Libya. Filing state income taxes Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. Filing state income taxes Limit on credit. Filing state income taxes   In figuring the foreign tax credit limit, discussed later, income from a sanctioned country is a separate category of foreign income unless a Presidential waiver is granted. Filing state income taxes You must fill out a separate Form 1116 for this income. Filing state income taxes This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. Filing state income taxes Example. Filing state income taxes You lived and worked in Iran until August, when you were transferred to Italy. Filing state income taxes You paid taxes to each country on the income earned in that country. Filing state income taxes You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. Filing state income taxes Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. Filing state income taxes You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. Filing state income taxes Figuring the credit when a sanction ends. Filing state income taxes    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. Filing state income taxes For any of these countries, you can claim a foreign tax credit for the taxes paid or accrued to that country on the income for the period that begins after the end of the sanction period or the date the Presidential waiver was granted. Filing state income taxes Example. Filing state income taxes The sanctions against Country X ended on July 31. Filing state income taxes On August 19, you receive a distribution from a mutual fund of Country X income. Filing state income taxes The fund paid Country X income tax for you on the distribution. Filing state income taxes Because the distribution was made after the sanction ended, you may include the foreign tax paid on the distribution to compute your foreign tax credit. Filing state income taxes Amounts for the nonsanctioned period. Filing state income taxes   If a sanction period ends (or a Presidential waiver is granted) during your tax year and you are not able to determine the actual income and taxes for that period, you can allocate amounts to that period based on the number of days in the period that fall in your tax year. Filing state income taxes Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. Filing state income taxes   Number of nonsanctioned days in year  Number of days in year Example. Filing state income taxes You are a calendar year filer and received $20,000 of income from Country X in 2013 on which you paid tax of $4,500. Filing state income taxes Sanctions against Country X ended on July 11, 2013. Filing state income taxes You are unable to determine how much of the income or tax is for the nonsanctioned period. Filing state income taxes Because your tax year starts on January 1, and the Country X sanction ended on July 11, 2013, 173 days of your tax year are in the nonsanctioned period. Filing state income taxes You would compute the income for the nonsanctioned period as follows. Filing state income taxes 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. Filing state income taxes 173 365 × $4,500 = $2,133 To figure your foreign tax credit, you would use $9,479 as the income from Country X and $2,133 as the tax. Filing state income taxes Further information. Filing state income taxes   The rules for figuring the foreign tax credit after a country's sanction period ends are more fully explained in Revenue Ruling 92-62, Cumulative Bulletin 1992-2, page 193. Filing state income taxes This Cumulative Bulletin can be found in many libraries and IRS offices. Filing state income taxes Table 1. Filing state income taxes Countries Removed From the Sanction List or Granted Presidential Waiver   Sanction Period Country Starting Date Ending Date Iraq February 1, 1991 June 27, 2004 Libya January 1, 1987 December 9, 2004* *Presidential waiver granted for qualified income taxes arising after December 9, 2004. Filing state income taxes Taxes Imposed on Certain Dividends You cannot claim a foreign tax credit for withholding tax (defined later ) on dividends paid or accrued if either of the following applies to the dividends. Filing state income taxes The dividends are on stock you held for less than 16 days during the 31-day period that begins 15 days before the ex-dividend date (defined later). Filing state income taxes The dividends are for a period or periods totaling more than 366 days on preferred stock you held for less than 46 days during the 91-day period that begins 45 days before the ex-dividend date. Filing state income taxes If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. Filing state income taxes When figuring how long you held the stock, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. Filing state income taxes Regardless of how long you held the stock, you cannot claim the credit to the extent you have an obligation under a short sale or otherwise to make payments related to the dividend for positions in substantially similar or related property. Filing state income taxes Withholding tax. Filing state income taxes   For this purpose, withholding tax includes any tax determined on a gross basis. Filing state income taxes It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Filing state income taxes Ex-dividend date. Filing state income taxes   The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment. Filing state income taxes Example 1. Filing state income taxes You bought common stock from a foreign corporation on November 3. Filing state income taxes You sold the stock on November 19. Filing state income taxes You received a dividend on this stock because you owned it on the ex-dividend date of November 5. Filing state income taxes To claim the credit, you must have held the stock for at least 16 days within the 31-day period that began on October 21 (15 days before the ex-dividend date). Filing state income taxes Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. Filing state income taxes Example 2. Filing state income taxes The facts are the same as in Example 1 except that you sold the stock on November 14. Filing state income taxes You held the stock for only 11 days. Filing state income taxes You are not entitled to the credit. Filing state income taxes Exception. Filing state income taxes   If you are a securities dealer who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes paid on dividends regardless of how long you held the stock or whether you were obligated to make payments for positions in substantially similar or related property. Filing state income taxes See section 901(k)(4) of the Internal Revenue Code for more information. Filing state income taxes Taxes Withheld on Income or Gain (Other Than Dividends) For income or gain (other than dividends) paid or accrued on property, you cannot claim a foreign tax credit for withholding tax (defined later): If you have not held the property for at least 16 days during the 31-day period that begins 15 days before the date on which the right to receive the payment arises, or To the extent you have to make related payments on positions in substantially similar or related property. Filing state income taxes When figuring how long you held the property, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. Filing state income taxes Withholding tax. Filing state income taxes   For this purpose, withholding tax includes any tax determined on a gross basis. Filing state income taxes It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Filing state income taxes Exception for dealers. Filing state income taxes   If you are a dealer in property who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes withheld on income or gain from that property regardless of how long you held it or whether you have to make related payments on positions in substantially similar or related property. Filing state income taxes See section 901(I)(2) of the Internal Revenue Code for more information. Filing state income taxes Covered Asset Acquisition ???You cannot take a credit for the disqualified portion of any foreign tax paid or accrued in connection with a covered asset acquisition. Filing state income taxes A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. Filing state income taxes S. Filing state income taxes tax purposes but not for foreign tax purposes. Filing state income taxes For more information, see Internal Revenue Code section 901(m). Filing state income taxes The IRS intends to issue guidance that will explain this provision in greater detail. Filing state income taxes Taxes in Connection With the Purchase or Sale of Oil or Gas You cannot claim a foreign tax credit for taxes paid or accrued to a foreign country in connection with the purchase or sale of oil or gas extracted in that country if you do not have an economic interest in the oil or gas, and the purchase price or sales price is different from the fair market value of the oil or gas at the time of purchase or sale. Filing state income taxes Taxes on Foreign Mineral Income You must reduce any taxes paid or accrued to a foreign country or possession on mineral income from that country or possession if you were allowed a deduction for percentage depletion for any part of the mineral income. Filing state income taxes For details, see Regulations section 1. Filing state income taxes 901-3. Filing state income taxes Taxes From International Boycott Operations If you participate in or cooperate with an international boycott during the tax year, your foreign taxes resulting from boycott activities will reduce the total taxes available for credit. Filing state income taxes See the instructions for line 12 in the Form 1116 instructions to figure this reduction. Filing state income taxes In most cases, this rule does not apply to employees with wages who are working and living in boycotting countries, or to retirees with pensions who are living in these countries. Filing state income taxes List of boycotting countries. Filing state income taxes   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. Filing state income taxes As of November 2013, the following countries are listed. Filing state income taxes Iraq. Filing state income taxes Kuwait. Filing state income taxes Lebanon. Filing state income taxes Libya. Filing state income taxes Qatar. Filing state income taxes Saudi Arabia. Filing state income taxes Syria. Filing state income taxes United Arab Emirates. Filing state income taxes Yemen. Filing state income taxes    For information concerning changes to the list, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Determinations of whether the boycott rule applies. Filing state income taxes   You may request a determination from the Internal Revenue Service as to whether a particular operation constitutes participation in or cooperation with an international boycott. Filing state income taxes The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. Filing state income taxes Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. Filing state income taxes Public inspection. Filing state income taxes   A determination and any related background file is open to public inspection. Filing state income taxes However, your identity and certain other information will remain confidential. Filing state income taxes Reporting requirements. Filing state income taxes   You must file a report with the IRS if you or any of the following persons have operations in or related to a boycotting country or with the government, a company, or a national of a boycotting country. Filing state income taxes A foreign corporation in which you own 10% or more of the voting power of all voting stock but only if you own the stock of the foreign corporation directly or through foreign entities. Filing state income taxes A partnership in which you are a partner. Filing state income taxes A trust you are treated as owning. Filing state income taxes Form 5713 required. Filing state income taxes   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. Filing state income taxes See the Instructions for Form 5713 for information on when and where to file the form. Filing state income taxes Penalty for failure to file. Filing state income taxes   If you willfully fail to make a report, in addition to other penalties, you may be fined $25,000 or imprisoned for no more than one year, or both. Filing state income taxes Taxes on Combined Foreign Oil and Gas Income You must reduce your foreign taxes by a portion of any foreign taxes imposed on combined foreign oil and gas income. Filing state income taxes The amount of the reduction is the amount by which your foreign oil and gas taxes exceed the amount of your combined foreign oil and gas income multiplied by a fraction equal to your pre-credit U. Filing state income taxes S. Filing state income taxes tax liability (Form 1040, line 44) divided by your worldwide taxable income. Filing state income taxes You may be entitled to carry over to other years taxes reduced under this rule. Filing state income taxes See Internal Revenue Code section 907(f). Filing state income taxes Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. Filing state income taxes Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. Filing state income taxes Taxes of U. Filing state income taxes S. Filing state income taxes Persons Controlling Foreign Corporations and Partnerships If you had control of a foreign corporation or a foreign partnership for the annual accounting period of that corporation or partnership that ended with or within your tax year, you may have to file an annual information return. Filing state income taxes If you do not file the required information return, you may have to reduce the foreign taxes that may be used for the foreign tax credit. Filing state income taxes See Penalty for not filing Form 5471 or Form 8865 , later. Filing state income taxes U. Filing state income taxes S. Filing state income taxes persons controlling foreign corporations. Filing state income taxes   If you are a U. Filing state income taxes S. Filing state income taxes citizen or resident who had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of that corporation, you may have to file an annual information return on Form 5471, Information Return of U. Filing state income taxes S. Filing state income taxes Persons With Respect To Certain Foreign Corporations. Filing state income taxes Under this rule, you generally had control of a foreign corporation if at any time during your tax year you owned: Stock possessing more than 50% of the total combined voting power of all classes of stock entitled to vote, or More than 50% of the total value of shares of all classes of stock of the foreign corporation. Filing state income taxes U. Filing state income taxes S. Filing state income taxes persons controlling foreign partnerships. Filing state income taxes   If you are a U. Filing state income taxes S. Filing state income taxes citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file
Español

U.S. Commodity Futures Trading Commission (CFTC)

The mission of the CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets. In pursuit of its mission, the CFTC investigates and prosecutes commodities fraud, including foreign currency schemes, energy manipulation and hedge fund fraud, and works with other federal and state agencies to bring criminal and other actions. The CFTC also engages in public education and outreach by participating in consumer groups and issuing Consumer Advisories and other educational materials.

Contact the Agency or Department

Website: U.S. Commodity Futures Trading Commission (CFTC)

E-mail:

Address: Three Lafayette Center
1155 21st St., NW

Washington, DC 20581

Phone Number: (202) 418-5000

TTY: (202) 418-5514

The Filing State Income Taxes

Filing state income taxes Publication 1212 - Additional Material Prev  Up  Next   Home   More Online Publications