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Foreign

Claim foreign taxes paid as a credit vs deduction (Schedule A)

You can deduct the foreign taxes paid on Schedule A or calculate the Foreign Tax Credit. Diagnostics in UltraTax CS help test which option is better.

Deduct the foreign taxes on Schedule A

  1. Go to the federal
    1116
     window or
    B&D
     window and enter the foreign taxes paid.
  2. Go to the
    Cr
     window in the
    Credits
     folder and enter
    X
     in the
    Report all foreign tax on Schedule A
     field.
UltraTax CS reports the foreign taxes and prints foreign taxes next to the
Other taxes
 line on Schedule A.
note
Go to the
Cr
 window and view the
Report all foreign tax on Schedule A
 box. Then go to the
B&D
 window in the
Income
 folder and view the
Elect exemption from foreign tax credit limitation
 box.  If both boxes are checked, the system doesn't calculate a deduction or credit.

Diagnostics

You can test whether it's better for your client to report the foreign taxes as a deduction instead of a credit.
note
Refer to IRS Publication 514, Foreign Tax Credit for Individuals, for more information on who qualifies to take the Foreign Tax Credit. This publication also explains the advantages and disadvantages of claiming the Foreign Tax Credit.
  1. Enter all information in the return necessary to calculate the Foreign Tax Credit.
  2. Select
    View
    ,
    Diagnostics
    , then the
    Watch
     tab.
  3. Select the dropdown next to
    Watch
     and select
    Freeze
    . If there's no dropdown next to
    Watch
    , right-click the word
    Watch
     then select
    Freeze
    .
  4. Go to the
    Cr
     window in the
    Credits
     folder.
  5. Mark the
    Report all foreign tax on Schedule A
     checkbox.
  6. Go back to the
    Watch
     tab in the
    Diagnostics
     window.
    1. Information in the
      Now
       column shows claiming the foreign taxes as a deduction on Schedule A.
    2. Information in the
      Was
       column shows taking the Foreign Tax Credit.
  7. If it's better to take the Foreign Tax Credit, go to the
    Cr
     window in the
    Credits
     folder. Clear the
    Report all foreign taxes on Schedule A
     checkbox.

This article applies to:

  • PRODUCT: UltraTax CS
  • Return type: 1040 Individual
  • Subject: Foreign income

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