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State Income Tax Form 500ez

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State Income Tax Form 500ez

State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez 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. State income tax form 500ez Employee business expenses. State income tax form 500ez 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. State income tax form 500ez You can change your choice for each year's taxes. State income tax form 500ez To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. State income tax form 500ez S. State income tax form 500ez tax return. State income tax form 500ez However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. State income tax form 500ez See How To Figure the Credit , later. State income tax form 500ez To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. State income tax form 500ez Figure your tax both ways—claiming the credit and claiming the deduction. State income tax form 500ez Then fill out your return the way that benefits you more. State income tax form 500ez See Why Choose the Credit, later. State income tax form 500ez 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. State income tax form 500ez If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. State income tax form 500ez You cannot deduct any of them. State income tax form 500ez Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. State income tax form 500ez You cannot take a credit for any of them. State income tax form 500ez See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. State income tax form 500ez There are exceptions to this general rule, which are described next. State income tax form 500ez Exceptions for foreign taxes not allowed as a credit. State income tax form 500ez   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. State income tax form 500ez Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. State income tax form 500ez S. State income tax form 500ez tax purposes. State income tax form 500ez For more information, see Internal Revenue Code section 901(m). State income tax form 500ez The IRS intends to issue guidance that will explain this provision in greater detail. State income tax form 500ez   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. State income tax form 500ez Foreign taxes that are not income taxes. State income tax form 500ez   In most cases, only foreign income taxes qualify for the foreign tax credit. State income tax form 500ez Other taxes, such as foreign real and personal property taxes, do not qualify. State income tax form 500ez But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. State income tax form 500ez   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. State income tax form 500ez However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). State income tax form 500ez Carrybacks and carryovers. State income tax form 500ez   There is a limit on the credit you can claim in a tax year. State income tax form 500ez 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. State income tax form 500ez If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. State income tax form 500ez That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. State income tax form 500ez   For more information on the limit, see How To Figure the Credit , later. State income tax form 500ez For more information on carrybacks and carryovers, see Carryback and Carryover , later. State income tax form 500ez 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. State income tax form 500ez You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. State income tax form 500ez Example. State income tax form 500ez You paid foreign taxes for the last 13 years and chose to deduct them on your U. State income tax form 500ez S. State income tax form 500ez income tax returns. State income tax form 500ez You were timely in both filing your returns and paying your U. State income tax form 500ez S. State income tax form 500ez tax liability. State income tax form 500ez 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. State income tax form 500ez Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). State income tax form 500ez Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. State income tax form 500ez Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. State income tax form 500ez 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. State income tax form 500ez In most cases, if the foreign tax rate is higher than the U. State income tax form 500ez S. State income tax form 500ez rate, there will be no U. State income tax form 500ez S. State income tax form 500ez tax on the foreign income. State income tax form 500ez If the foreign tax rate is lower than the U. State income tax form 500ez S. State income tax form 500ez rate, U. State income tax form 500ez S. State income tax form 500ez tax on the foreign income will be limited to the difference between the rates. State income tax form 500ez The foreign tax credit can only reduce U. State income tax form 500ez S. State income tax form 500ez taxes on foreign source income; it cannot reduce U. State income tax form 500ez S. State income tax form 500ez taxes on U. State income tax form 500ez S. State income tax form 500ez source income. State income tax form 500ez 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. State income tax form 500ez This is because: A credit reduces your actual U. State income tax form 500ez S. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez (See Limit on credit under How To Figure the Credit, later. State income tax form 500ez ) Example 1. State income tax form 500ez For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. State income tax form 500ez None of the dividends are qualified dividends. State income tax form 500ez You file a joint return and can claim two $3,900 exemptions. State income tax form 500ez You had to pay $2,000 in foreign income taxes on the dividend income. State income tax form 500ez If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. State income tax form 500ez Your taxable income then is $57,500 and your tax is $7,736. State income tax form 500ez If you take the credit instead, your itemized deductions are only $13,000. State income tax form 500ez Your taxable income then is $59,500 and your tax before the credit is $8,036. State income tax form 500ez After the credit, however, your tax is only $6,036. State income tax form 500ez Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. State income tax form 500ez Example 2. State income tax form 500ez In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. State income tax form 500ez You report on your U. State income tax form 500ez S. State income tax form 500ez return this income as well as $56,000 of U. State income tax form 500ez S. State income tax form 500ez source wages and an allowable $49,000 partnership loss from a U. State income tax form 500ez S. State income tax form 500ez partnership. State income tax form 500ez Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. State income tax form 500ez You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. State income tax form 500ez If you deduct the foreign tax on your U. State income tax form 500ez S. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez You can take a credit of only $113 because of limits discussed later. State income tax form 500ez Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. State income tax form 500ez If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez “Tax year” refers to the tax year for which your U. State income tax form 500ez S. State income tax form 500ez return is filed, not the tax year for which your foreign return is filed. State income tax form 500ez Accrual method of accounting. State income tax form 500ez   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. State income tax form 500ez 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. State income tax form 500ez   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. State income tax form 500ez Generally, this occurs on the last day of the tax year for which your foreign return is filed. State income tax form 500ez Contesting your foreign tax liability. State income tax form 500ez   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. State income tax form 500ez 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. State income tax form 500ez Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. State income tax form 500ez 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 . State income tax form 500ez You may have to post a bond. State income tax form 500ez   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. State income tax form 500ez   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. State income tax form 500ez Cash method of accounting. State income tax form 500ez   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. State income tax form 500ez 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. State income tax form 500ez Choosing to take credit in the year taxes accrue. State income tax form 500ez   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. State income tax form 500ez You make the choice by checking the box in Part II of Form 1116. State income tax form 500ez 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. State income tax form 500ez   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. State income tax form 500ez You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. State income tax form 500ez   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. State income tax form 500ez Credit based on taxes paid in earlier year. State income tax form 500ez   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. State income tax form 500ez Example. State income tax form 500ez Last year you took the credit based on taxes paid. State income tax form 500ez This year you chose to take the credit based on taxes accrued. State income tax form 500ez During the year you paid foreign income taxes owed for last year. State income tax form 500ez You also accrued foreign income taxes for this year that you did not pay by the end of the year. State income tax form 500ez 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. State income tax form 500ez Foreign Currency and Exchange Rates U. State income tax form 500ez S. State income tax form 500ez income tax is imposed on income expressed in U. State income tax form 500ez S. State income tax form 500ez dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. State income tax form 500ez Therefore, fluctuations in the value of the foreign currency relative to the U. State income tax form 500ez S. State income tax form 500ez dollar may affect the foreign tax credit. State income tax form 500ez Translating foreign currency into U. State income tax form 500ez S. State income tax form 500ez dollars. State income tax form 500ez   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. State income tax form 500ez S. State income tax form 500ez dollars. State income tax form 500ez How and when you do this depends on your functional currency. State income tax form 500ez In most cases, your functional currency is the U. State income tax form 500ez S. State income tax form 500ez dollar unless you are required to use the currency of a foreign country. State income tax form 500ez   You must make all federal income tax determinations in your functional currency. State income tax form 500ez The U. State income tax form 500ez S. State income tax form 500ez dollar is the functional currency for all taxpayers except some qualified business units. State income tax form 500ez A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. State income tax form 500ez Unless you are self-employed, your functional currency is the U. State income tax form 500ez S. State income tax form 500ez dollar. State income tax form 500ez   Even if you are self-employed and have a qualified business unit, your functional currency is the U. State income tax form 500ez S. State income tax form 500ez dollar if any of the following apply. State income tax form 500ez You conduct the business primarily in dollars. State income tax form 500ez The principal place of business is located in the United States. State income tax form 500ez You choose to or are required to use the dollar as your functional currency. State income tax form 500ez 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. State income tax form 500ez   If your functional currency is the U. State income tax form 500ez S. State income tax form 500ez dollar, you must immediately translate into dollars all items of income, expense, etc. State income tax form 500ez , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. State income tax form 500ez If there is more than one exchange rate, use the one that most properly reflects your income. State income tax form 500ez In most cases, you can get exchange rates from banks and U. State income tax form 500ez S. State income tax form 500ez Embassies. State income tax form 500ez   If your functional currency is not the U. State income tax form 500ez S. State income tax form 500ez dollar, make all income tax determinations in your functional currency. State income tax form 500ez At the end of the year, translate the results, such as income or loss, into U. State income tax form 500ez S. State income tax form 500ez dollars to report on your income tax return. State income tax form 500ez    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. State income tax form 500ez   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. State income tax form 500ez If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. State income tax form 500ez 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. State income tax form 500ez   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). State income tax form 500ez Exception. State income tax form 500ez   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. State income tax form 500ez This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. State income tax form 500ez The foreign taxes are paid on or after the first day of the tax year to which they relate. State income tax form 500ez The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. State income tax form 500ez The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). State income tax form 500ez (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. State income tax form 500ez )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. State income tax form 500ez Election to use exchange rate on date paid. State income tax form 500ez   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. State income tax form 500ez If any of the accrued taxes are unpaid, you must translate them into U. State income tax form 500ez S. State income tax form 500ez dollars using the exchange rate on the last day of the U. State income tax form 500ez S. State income tax form 500ez tax year to which those taxes relate. State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez dollar functional currency. State income tax form 500ez 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. State income tax form 500ez The election is available for tax years beginning after 2004. State income tax form 500ez 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. State income tax form 500ez Make the election by attaching a statement to the applicable tax return. State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez dollar functional currency. State income tax form 500ez Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. State income tax form 500ez S. State income tax form 500ez foreign tax credit claimed. State income tax form 500ez 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. State income tax form 500ez If a foreign tax redetermination occurs, a redetermination of your U. State income tax form 500ez S. State income tax form 500ez tax liability is required if any of the following conditions apply. State income tax form 500ez The accrued taxes when paid differ from the amounts claimed as a credit. State income tax form 500ez 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. State income tax form 500ez If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. State income tax form 500ez You will not be allowed a credit for the unpaid taxes until you pay them. State income tax form 500ez When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. State income tax form 500ez S. State income tax form 500ez dollars using the exchange rate as of the date they were paid. State income tax form 500ez The foreign tax credit is allowed for the year to which the foreign tax relates. State income tax form 500ez See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. State income tax form 500ez The foreign taxes you paid are refunded in whole or in part. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez tax year. State income tax form 500ez In this case, you must adjust your U. State income tax form 500ez S. State income tax form 500ez tax in the tax year in which the accrued foreign taxes are paid. State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez tax liability for each tax year affected by the redetermination. State income tax form 500ez In most cases, you must file Form 1040X, Amended U. State income tax form 500ez S. State income tax form 500ez Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. State income tax form 500ez S. State income tax form 500ez tax liability for the year or years affected. State income tax form 500ez See Contents of statement , later. State income tax form 500ez 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. State income tax form 500ez There are other exceptions to this requirement. State income tax form 500ez They are discussed later under Due date of notification to IRS . State income tax form 500ez Contents of statement. State income tax form 500ez   The statement must include all of the following. State income tax form 500ez Your name, address, and taxpayer identification number. State income tax form 500ez The tax year or years that are affected by the foreign tax redetermination. State income tax form 500ez The date or dates the foreign taxes were accrued, if applicable. State income tax form 500ez The date or dates the foreign taxes were paid. State income tax form 500ez The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. State income tax form 500ez 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. State income tax form 500ez   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. State income tax form 500ez   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). State income tax form 500ez Due date of notification to IRS. State income tax form 500ez   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. State income tax form 500ez There is no limit on the time the IRS has to redetermine and assess the correct U. State income tax form 500ez S. State income tax form 500ez tax due. State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez taxes. State income tax form 500ez See Time Limit on Refund Claims , later. State income tax form 500ez   Exceptions to this due date are explained in the next two paragraphs. State income tax form 500ez Multiple redeterminations of U. State income tax form 500ez S. State income tax form 500ez tax liability for same tax year. State income tax form 500ez   Where more than one foreign tax redetermination requires a redetermination of U. State income tax form 500ez S. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. State income tax form 500ez S. State income tax form 500ez tax liability is required may occur after the due date for providing that notification. State income tax form 500ez In this situation, you may have to file more than one Form 1040X for that tax year. State income tax form 500ez Additional U. State income tax form 500ez S. State income tax form 500ez tax due eliminated by foreign tax credit carryback or carryover. State income tax form 500ez   If a foreign tax redetermination requires a redetermination of U. State income tax form 500ez S. State income tax form 500ez tax liability that would otherwise result in an additional amount of U. State income tax form 500ez S. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez You must file the statement by the due date (with extensions) of that return. State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez tax liability is required). State income tax form 500ez Failure-to-notify penalty. State income tax form 500ez   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. State income tax form 500ez   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. State income tax form 500ez S. State income tax form 500ez tax. State income tax form 500ez This penalty cannot be more than 25% of the tax due. State income tax form 500ez Foreign tax refund. State income tax form 500ez   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. State income tax form 500ez S. State income tax form 500ez tax for the time before the date of the refund. State income tax form 500ez   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. State income tax form 500ez 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. State income tax form 500ez Interest also is owed from the time you receive a refund until you pay the additional tax due. State income tax form 500ez Foreign tax imposed on foreign refund. State income tax form 500ez   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. State income tax form 500ez 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. State income tax form 500ez Example. State income tax form 500ez 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. State income tax form 500ez When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. State income tax form 500ez Time Limit on Refund Claims You have 10 years to file a claim for refund of U. State income tax form 500ez S. State income tax form 500ez tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. State income tax form 500ez 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. State income tax form 500ez You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. State income tax form 500ez 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). State income tax form 500ez The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. State income tax form 500ez See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. State income tax form 500ez Who Can Take the Credit? U. State income tax form 500ez S. State income tax form 500ez citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. State income tax form 500ez S. State income tax form 500ez tax on foreign source income may be able to take a foreign tax credit. State income tax form 500ez U. State income tax form 500ez S. State income tax form 500ez Citizens If you are a U. State income tax form 500ez S. State income tax form 500ez citizen, you are taxed by the United States on your worldwide income wherever you live. State income tax form 500ez You are normally entitled to take a credit for foreign taxes you pay or accrue. State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez citizens. State income tax form 500ez If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. State income tax form 500ez 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. State income tax form 500ez For information on alien status, see Publication 519. State income tax form 500ez Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez possession on income from foreign sources that is effectively connected with a trade or business in the United States. State income tax form 500ez But if you must pay tax to a foreign country or U. State income tax form 500ez S. State income tax form 500ez possession on income from U. State income tax form 500ez S. State income tax form 500ez sources only because you are a citizen or a resident of that country or U. State income tax form 500ez S. State income tax form 500ez possession, do not use that tax in figuring the amount of your credit. State income tax form 500ez For information on alien status and effectively connected income, see Publication 519. State income tax form 500ez 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. State income tax form 500ez The tax must be imposed on you. State income tax form 500ez You must have paid or accrued the tax. State income tax form 500ez The tax must be the legal and actual foreign tax liability. State income tax form 500ez The tax must be an income tax (or a tax in lieu of an income tax). State income tax form 500ez Certain foreign taxes do not qualify for the credit even if the four tests are met. State income tax form 500ez See Foreign Taxes for Which You Cannot Take a Credit, later. State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez possession. State income tax form 500ez For example, a tax that is deducted from your wages is considered to be imposed on you. State income tax form 500ez You cannot shift the right to claim the credit by contract or other means. State income tax form 500ez Foreign country. State income tax form 500ez   A foreign country includes any foreign state and its political subdivisions. State income tax form 500ez Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. State income tax form 500ez U. State income tax form 500ez S. State income tax form 500ez possessions. State income tax form 500ez   For foreign tax credit purposes, all qualified taxes paid to U. State income tax form 500ez S. State income tax form 500ez possessions are considered foreign taxes. State income tax form 500ez For this purpose, U. State income tax form 500ez S. State income tax form 500ez possessions include Puerto Rico and American Samoa. State income tax form 500ez   When the term “foreign country” is used in this publication, it includes U. State income tax form 500ez S. State income tax form 500ez possessions unless otherwise stated. State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez possession. State income tax form 500ez 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. State income tax form 500ez Joint return. State income tax form 500ez   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. State income tax form 500ez Combined income. State income tax form 500ez   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. State income tax form 500ez 901-2(f)(3)(iii). State income tax form 500ez 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. State income tax form 500ez   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. State income tax form 500ez 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. State income tax form 500ez For more details, see paragraphs (f) and (h) of Regulations section 1. State income tax form 500ez 901-2. State income tax form 500ez For similar rules applicable to prior tax years, see Regulations section 1. State income tax form 500ez 901-2 (revised as of April 1, 2011). State income tax form 500ez Example. State income tax form 500ez You and your spouse reside in Country X, which imposes income tax on your combined incomes. State income tax form 500ez Both of you use the “u” as your functional currency. State income tax form 500ez Country X apportions tax based on income. State income tax form 500ez You had income of 30,000u and your spouse had income of 20,000u. State income tax form 500ez Your filing status on your U. State income tax form 500ez S. State income tax form 500ez income tax return is married filing separately. State income tax form 500ez You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. State income tax form 500ez S income tax return. State income tax form 500ez Your spouse can claim only 40% (20,000u/50,000u). State income tax form 500ez Partner or S corporation shareholder. State income tax form 500ez   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. State income tax form 500ez These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. State income tax form 500ez 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. State income tax form 500ez Beneficiary. State income tax form 500ez   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. State income tax form 500ez This amount will be shown on the Schedule K-1 you receive from the estate or trust. State income tax form 500ez However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. State income tax form 500ez Mutual fund shareholder. State income tax form 500ez   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. State income tax form 500ez 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. State income tax form 500ez If you do not receive this information, you will need to contact the fund. State income tax form 500ez Controlled foreign corporation shareholder. State income tax form 500ez   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. State income tax form 500ez If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. State income tax form 500ez Controlled foreign corporation. State income tax form 500ez   A controlled foreign corporation is a foreign corporation in which U. State income tax form 500ez S. State income tax form 500ez shareholders own more than 50% of the voting power or value of the stock. State income tax form 500ez You are considered a U. State income tax form 500ez S. State income tax form 500ez shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. State income tax form 500ez See Internal Revenue Code sections 951(b) and 958(b) for more information. State income tax form 500ez 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. State income tax form 500ez Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. State income tax form 500ez Foreign tax refund. State income tax form 500ez   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. State income tax form 500ez   For example, the United States has tax treaties with many countries allowing U. State income tax form 500ez S. State income tax form 500ez citizens and residents reductions in the rates of tax of those foreign countries. State income tax form 500ez However, some treaty countries require U. State income tax form 500ez S. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez Subsidy received. State income tax form 500ez   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez   The term “subsidy” includes any type of benefit. State income tax form 500ez Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. State income tax form 500ez Shareholder receiving refund for corporate tax in integrated system. State income tax form 500ez   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. State income tax form 500ez You may be able to claim a refund of these taxes from the foreign government. State income tax form 500ez You must include the refund (including any amount withheld) in your income in the year received. State income tax form 500ez Any tax withheld from the refund is a qualified foreign tax. State income tax form 500ez Example. State income tax form 500ez You are a shareholder of a French corporation. State income tax form 500ez You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. State income tax form 500ez The French government imposes a 15% withholding tax ($15) on the refund you received. State income tax form 500ez You receive a check for $85. State income tax form 500ez You include $100 in your income. State income tax form 500ez The $15 of tax withheld is a qualified foreign tax. State income tax form 500ez 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. State income tax form 500ez Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. State income tax form 500ez 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. State income tax form 500ez See Taxes in Lieu of Income Taxes , later. State income tax form 500ez 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. State income tax form 500ez A foreign levy is an income tax only if it meets both of the following requirements. State income tax form 500ez It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. State income tax form 500ez The predominant character of the tax is that of an income tax in the U. State income tax form 500ez S. State income tax form 500ez sense. State income tax form 500ez A foreign levy may meet these requirements even if the foreign tax law differs from U. State income tax form 500ez S. State income tax form 500ez tax law. State income tax form 500ez The foreign law may include in income items that U. State income tax form 500ez S. State income tax form 500ez law does not include, or it may allow certain exclusions or deductions that U. State income tax form 500ez S. State income tax form 500ez law does not allow. State income tax form 500ez Specific economic benefit. State income tax form 500ez   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. State income tax form 500ez   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. State income tax form 500ez   However, see the exception discussed later under Pension, unemployment, and disability fund payments . State income tax form 500ez Economic benefits. State income tax form 500ez   Economic benefits include the following. State income tax form 500ez Goods. State income tax form 500ez Services. State income tax form 500ez Fees or other payments. State income tax form 500ez Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. State income tax form 500ez Discharges of contractual obligations. State income tax form 500ez   In most cases, the right or privilege merely to engage in business is not an economic benefit. State income tax form 500ez Dual-capacity taxpayers. State income tax form 500ez   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. State income tax form 500ez ” 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. State income tax form 500ez    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. State income tax form 500ez   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. State income tax form 500ez    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. State income tax form 500ez For more information about these agreements, see Publication 54. State income tax form 500ez Soak-up taxes. State income tax form 500ez   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. State income tax form 500ez 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. State income tax form 500ez This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. State income tax form 500ez Penalties and interest. State income tax form 500ez   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. State income tax form 500ez Taxes not based on income. State income tax form 500ez   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. State income tax form 500ez Taxes based on assets, such as property taxes, do not qualify for the credit. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez A tax in lieu of an income tax does not have to be based on realized net income. State income tax form 500ez A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. State income tax form 500ez In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. State income tax form 500ez 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. State income tax form 500ez The soak-up tax. State income tax form 500ez 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. State income tax form 500ez Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. State income tax form 500ez Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. State income tax form 500ez S. State income tax form 500ez gross income. State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez income under the foreign earned income exclusion or the foreign housing exclusion. State income tax form 500ez See Publication 54 for more information on the foreign earned income and housing exclusions. State income tax form 500ez Wages completely excluded. State income tax form 500ez   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. State income tax form 500ez Wages partly excluded. State income tax form 500ez   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. State income tax form 500ez 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. State income tax form 500ez   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. State income tax form 500ez Deductible expenses do not include the foreign housing deduction. State income tax form 500ez   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). State income tax form 500ez If the foreign law taxes foreign earned income and some other income (for example, earned income from U. State income tax form 500ez S. State income tax form 500ez sources or a type of income not subject to U. State income tax form 500ez S. State income tax form 500ez 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. State income tax form 500ez Example. State income tax form 500ez You are a U. State income tax form 500ez S. State income tax form 500ez citizen and a cash basis taxpayer, employed by Company X and living in Country A. State income tax form 500ez 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. State income tax form 500ez To find that part, do the following. State income tax form 500ez First, find the amount of business expenses allocable to excluded wages and therefore not deductible. State income tax form 500ez To do this, multiply the otherwise deductible expenses by a fraction. State income tax form 500ez That fraction is the excluded wages over your foreign earned income. State income tax form 500ez   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. State income tax form 500ez To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). State income tax form 500ez The result is $81,984. State income tax form 500ez 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). State income tax form 500ez Finally, multiply the foreign tax you paid by the resulting fraction. State income tax form 500ez   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. State income tax form 500ez Taxes on Income From Puerto Rico Exempt From U. State income tax form 500ez S. State income tax form 500ez 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. State income tax form 500ez For information on figuring the reduction, see Publication 570. State income tax form 500ez 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. State income tax form 500ez For more information on this exclusion, see Publication 570. State income tax form 500ez Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. State income tax form 500ez However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. State income tax form 500ez 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. State income tax form 500ez However, you can claim an itemized deduction for these taxes. State income tax form 500ez See Choosing To Take Credit or Deduction , earlier. State income tax form 500ez 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. State income tax form 500ez The following countries meet this description for 2013. State income tax form 500ez Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. State income tax form 500ez Cuba. State income tax form 500ez Iran. State income tax form 500ez Libya (but see Note later). State income tax form 500ez North Korea. State income tax form 500ez Sudan. State income tax form 500ez Syria. State income tax form 500ez Waiver of denial of the credit. State income tax form 500ez   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. State income tax form 500ez S. State income tax form 500ez companies in the sanctioned country. State income tax form 500ez 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. State income tax form 500ez Note. State income tax form 500ez Effective December 10, 2004, the President granted a waiver to Libya. State income tax form 500ez Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. State income tax form 500ez Limit on credit. State income tax form 500ez   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. State income tax form 500ez You must fill out a separate Form 1116 for this income. State income tax form 500ez This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. State income tax form 500ez Example. State income tax form 500ez You lived and worked in Iran until August, when you were transferred to Italy. State income tax form 500ez You paid taxes to each country on the income earned in that country. State income tax form 500ez You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. State income tax form 500ez Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. State income tax form 500ez You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. State income tax form 500ez Figuring the credit when a sanction ends. State income tax form 500ez    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. State income tax form 500ez 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. State income tax form 500ez Example. State income tax form 500ez The sanctions against Country X ended on July 31. State income tax form 500ez On August 19, you receive a distribution from a mutual fund of Country X income. State income tax form 500ez The fund paid Country X income tax for you on the distribution. State income tax form 500ez 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. State income tax form 500ez Amounts for the nonsanctioned period. State income tax form 500ez   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. State income tax form 500ez Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. State income tax form 500ez   Number of nonsanctioned days in year  Number of days in year Example. State income tax form 500ez 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. State income tax form 500ez Sanctions against Country X ended on July 11, 2013. State income tax form 500ez You are unable to determine how much of the income or tax is for the nonsanctioned period. State income tax form 500ez 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. State income tax form 500ez You would compute the income for the nonsanctioned period as follows. State income tax form 500ez 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. State income tax form 500ez 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. State income tax form 500ez Further information. State income tax form 500ez   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. State income tax form 500ez This Cumulative Bulletin can be found in many libraries and IRS offices. State income tax form 500ez Table 1. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez 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). State income tax form 500ez 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. State income tax form 500ez If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez Withholding tax. State income tax form 500ez   For this purpose, withholding tax includes any tax determined on a gross basis. State income tax form 500ez It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. State income tax form 500ez Ex-dividend date. State income tax form 500ez   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. State income tax form 500ez Example 1. State income tax form 500ez You bought common stock from a foreign corporation on November 3. State income tax form 500ez You sold the stock on November 19. State income tax form 500ez You received a dividend on this stock because you owned it on the ex-dividend date of November 5. State income tax form 500ez 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). State income tax form 500ez Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. State income tax form 500ez Example 2. State income tax form 500ez The facts are the same as in Example 1 except that you sold the stock on November 14. State income tax form 500ez You held the stock for only 11 days. State income tax form 500ez You are not entitled to the credit. State income tax form 500ez Exception. State income tax form 500ez   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. State income tax form 500ez See section 901(k)(4) of the Internal Revenue Code for more information. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez Withholding tax. State income tax form 500ez   For this purpose, withholding tax includes any tax determined on a gross basis. State income tax form 500ez It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. State income tax form 500ez Exception for dealers. State income tax form 500ez   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. State income tax form 500ez See section 901(I)(2) of the Internal Revenue Code for more information. State income tax form 500ez 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. State income tax form 500ez A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. State income tax form 500ez S. State income tax form 500ez tax purposes but not for foreign tax purposes. State income tax form 500ez For more information, see Internal Revenue Code section 901(m). State income tax form 500ez The IRS intends to issue guidance that will explain this provision in greater detail. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez For details, see Regulations section 1. State income tax form 500ez 901-3. State income tax form 500ez 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. State income tax form 500ez See the instructions for line 12 in the Form 1116 instructions to figure this reduction. State income tax form 500ez 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. State income tax form 500ez List of boycotting countries. State income tax form 500ez   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. State income tax form 500ez As of November 2013, the following countries are listed. State income tax form 500ez Iraq. State income tax form 500ez Kuwait. State income tax form 500ez Lebanon. State income tax form 500ez Libya. State income tax form 500ez Qatar. State income tax form 500ez Saudi Arabia. State income tax form 500ez Syria. State income tax form 500ez United Arab Emirates. State income tax form 500ez Yemen. State income tax form 500ez    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. State income tax form 500ez   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. State income tax form 500ez The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. State income tax form 500ez Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. State income tax form 500ez Public inspection. State income tax form 500ez   A determination and any related background file is open to public inspection. State income tax form 500ez However, your identity and certain other information will remain confidential. State income tax form 500ez Reporting requirements. State income tax form 500ez   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. State income tax form 500ez 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. State income tax form 500ez A partnership in which you are a partner. State income tax form 500ez A trust you are treated as owning. State income tax form 500ez Form 5713 required. State income tax form 500ez   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. State income tax form 500ez See the Instructions for Form 5713 for information on when and where to file the form. State income tax form 500ez Penalty for failure to file. State income tax form 500ez   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. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez tax liability (Form 1040, line 44) divided by your worldwide taxable income. State income tax form 500ez You may be entitled to carry over to other years taxes reduced under this rule. State income tax form 500ez See Internal Revenue Code section 907(f). State income tax form 500ez Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. State income tax form 500ez Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. State income tax form 500ez Taxes of U. State income tax form 500ez S. State income tax form 500ez 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. State income tax form 500ez 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. State income tax form 500ez See Penalty for not filing Form 5471 or Form 8865 , later. State income tax form 500ez U. State income tax form 500ez S. State income tax form 500ez persons controlling foreign corporations. State income tax form 500ez   If you are a U. State income tax form 500ez S. State income tax form 500ez 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. State income tax form 500ez S. State income tax form 500ez Persons With Respect To Certain Foreign Corporations. State income tax form 500ez 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. State income tax form 500ez U. State income tax form 500ez S. State income tax form 500ez persons controlling foreign partnerships. State income tax form 500ez   If you are a U. State income tax form 500ez S. State income tax form 500ez citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file
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The State Income Tax Form 500ez

State income tax form 500ez 3. State income tax form 500ez   Gifts Table of Contents If you give gifts in the course of your trade or business, you can deduct all or part of the cost. State income tax form 500ez This chapter explains the limits and rules for deducting the costs of gifts. State income tax form 500ez $25 limit. State income tax form 500ez   You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. State income tax form 500ez A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift. State income tax form 500ez   If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. State income tax form 500ez This rule does not apply if you have a bona fide, independent business connection with that family member and the gift is not intended for the customer's eventual use. State income tax form 500ez   If you and your spouse both give gifts, both of you are treated as one taxpayer. State income tax form 500ez It does not matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. State income tax form 500ez If a partnership gives gifts, the partnership and the partners are treated as one taxpayer. State income tax form 500ez Example. State income tax form 500ez Bob Jones sells products to Local Company. State income tax form 500ez He and his wife, Jan, gave Local Company three gourmet gift baskets to thank them for their business. State income tax form 500ez They paid $80 for each gift basket, or $240 total. State income tax form 500ez Three of Local Company's executives took the gift baskets home for their families' use. State income tax form 500ez Bob and Jan have no independent business relationship with any of the executives' other family members. State income tax form 500ez They can deduct a total of $75 ($25 limit × 3) for the gift baskets. State income tax form 500ez Incidental costs. State income tax form 500ez   Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit. State income tax form 500ez   A cost is incidental only if it does not add substantial value to the gift. State income tax form 500ez For example, the cost of gift wrapping is an incidental cost. State income tax form 500ez However, the purchase of an ornamental basket for packaging fruit is not an incidental cost if the value of the basket is substantial compared to the value of the fruit. State income tax form 500ez Exceptions. State income tax form 500ez   The following items are not considered gifts for purposes of the $25 limit. State income tax form 500ez An item that costs $4 or less and: Has your name clearly and permanently imprinted on the gift, and Is one of a number of identical items you widely distribute. State income tax form 500ez Examples include pens, desk sets, and plastic bags and cases. State income tax form 500ez Signs, display racks, or other promotional material to be used on the business premises of the recipient. State income tax form 500ez    Figure B. State income tax form 500ez When Are Transportation Expenses Deductible? Most employees and self-employed persons can use this chart. State income tax form 500ez (Do not use this chart if your home is your principal place of business. State income tax form 500ez See Office in the home . State income tax form 500ez ) Please click here for the text description of the image. State income tax form 500ez Figure B. State income tax form 500ez When Are Local Transportation Expenses Deductible?TAs for Figure B are: Reg 1. State income tax form 500ez 162-1(a); RR 55–109; RR 94–47 Gift or entertainment. State income tax form 500ez   Any item that might be considered either a gift or entertainment generally will be considered entertainment. State income tax form 500ez However, if you give a customer packaged food or beverages you intend the customer to use at a later date, treat it as a gift. State income tax form 500ez    If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. State income tax form 500ez You can treat the cost of the tickets as either a gift expense or an entertainment expense, whichever is to your advantage. State income tax form 500ez   You can change your treatment of the tickets at a later date by filing an amended return. State income tax form 500ez Generally, an amended return must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. State income tax form 500ez    If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. State income tax form 500ez You cannot choose, in this case, to treat the cost of the tickets as a gift expense. State income tax form 500ez Prev  Up  Next   Home   More Online Publications