how do I calculate foreign tax credit on dividend withholding?

Question

I receive a divident of $100 from a canadian trust, of which
$30 was withheld by Canada. How do I calculate the US
tax, using the foreign tax credit?

Answer 1

You need to refer to Federal Tax Law Sec. 12.10.09 Code 5.1

Answer 2

The $100 is included in your dividend income on your US tax return, Line 9a.

If the $30 kept by Canada is the only foreign tax, enter $30 on Line 47 of Form 1040. This assumes your taxes shown on Line 44 is at least $30. If Line 44 is less than $30, enter that amount on Line 47.

Otherwise, compute the foreign tax credit using Form 1116 and enter your credit on Line 47.

Answer 3

The foreign tax credit on the US return, in laymen's terms, is the lesser of the foreign tax paid (or accrued, depending on whether you are using the paid basis or accrued basis) or the US tax on the same income. When you prepare the Form 1116 to claim the foreign tax credit, you calculate the tax liability on all of your income, and then you calculate the NET taxable income related to your foreign income. This means you take your foreign income of $100, then deduct a prorated portion of your itemized or standard deduction (whichever one you are claiming) and your personal exemptions to get to your net taxable foreign income. The ratio of foreign income to worldwide income is then multiplied by your total federal tax liability to determine your maximum foreign tax credit, which is based on your federal tax. This is then compared to the foreign tax you paid and then the lesser of the two is taken as a credit. Since the Canadian tax withholding is 30%, I suspect you won't be able to get back all of the Canadian tax as a credit, since the US foreign tax credit would be based on your effective tax rate, and not your marginal tax rate.

Also keep in mind that when calculating the foreign tax credit, you have to consider which "basket" the income is earned in. If you have foreign income from several different types of sources, i.e. rentals, dividends, interest, and wages, the foreign tax credit is calculated independently for each type of income, and you can only claim the foreign tax credit against the US tax on it's respective "basket" of income.

Answer 4

To whom is he paying this "value". notwithstanding if that's to the government you have got something. If he's interior the organization of merchandising something it may be deductible as a organization rate. He might desire to seek for suggestion from a tax expert and clarify the circumstances, which will supply them a huge gamble to debate all the opportunities.