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Download A 1040ez Federal Tax Form

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Download a 1040ez federal tax form 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. Download a 1040ez federal tax form S. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form S. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form S. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form Employee business expenses. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form You can change your choice for each year's taxes. Download a 1040ez federal tax form To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form tax return. Download a 1040ez federal tax form However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. Download a 1040ez federal tax form See How To Figure the Credit , later. Download a 1040ez federal tax form To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. Download a 1040ez federal tax form Figure your tax both ways—claiming the credit and claiming the deduction. Download a 1040ez federal tax form Then fill out your return the way that benefits you more. Download a 1040ez federal tax form See Why Choose the Credit, later. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. Download a 1040ez federal tax form You cannot deduct any of them. Download a 1040ez federal tax form Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. Download a 1040ez federal tax form You cannot take a credit for any of them. Download a 1040ez federal tax form See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. Download a 1040ez federal tax form There are exceptions to this general rule, which are described next. Download a 1040ez federal tax form Exceptions for foreign taxes not allowed as a credit. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form tax purposes. Download a 1040ez federal tax form For more information, see Internal Revenue Code section 901(m). Download a 1040ez federal tax form The IRS intends to issue guidance that will explain this provision in greater detail. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form Foreign taxes that are not income taxes. Download a 1040ez federal tax form   In most cases, only foreign income taxes qualify for the foreign tax credit. Download a 1040ez federal tax form Other taxes, such as foreign real and personal property taxes, do not qualify. Download a 1040ez federal tax form But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). Download a 1040ez federal tax form Carrybacks and carryovers. Download a 1040ez federal tax form   There is a limit on the credit you can claim in a tax year. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. Download a 1040ez federal tax form That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. Download a 1040ez federal tax form   For more information on the limit, see How To Figure the Credit , later. Download a 1040ez federal tax form For more information on carrybacks and carryovers, see Carryback and Carryover , later. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. Download a 1040ez federal tax form Example. Download a 1040ez federal tax form You paid foreign taxes for the last 13 years and chose to deduct them on your U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form income tax returns. Download a 1040ez federal tax form You were timely in both filing your returns and paying your U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form tax liability. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). Download a 1040ez federal tax form Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. Download a 1040ez federal tax form Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form In most cases, if the foreign tax rate is higher than the U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form rate, there will be no U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form tax on the foreign income. Download a 1040ez federal tax form If the foreign tax rate is lower than the U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form rate, U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form tax on the foreign income will be limited to the difference between the rates. Download a 1040ez federal tax form The foreign tax credit can only reduce U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form taxes on foreign source income; it cannot reduce U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form taxes on U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form source income. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form This is because: A credit reduces your actual U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form (See Limit on credit under How To Figure the Credit, later. Download a 1040ez federal tax form ) Example 1. Download a 1040ez federal tax form For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. Download a 1040ez federal tax form None of the dividends are qualified dividends. Download a 1040ez federal tax form You file a joint return and can claim two $3,900 exemptions. Download a 1040ez federal tax form You had to pay $2,000 in foreign income taxes on the dividend income. Download a 1040ez federal tax form If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. Download a 1040ez federal tax form Your taxable income then is $57,500 and your tax is $7,736. Download a 1040ez federal tax form If you take the credit instead, your itemized deductions are only $13,000. Download a 1040ez federal tax form Your taxable income then is $59,500 and your tax before the credit is $8,036. Download a 1040ez federal tax form After the credit, however, your tax is only $6,036. Download a 1040ez federal tax form Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. Download a 1040ez federal tax form Example 2. Download a 1040ez federal tax form In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. Download a 1040ez federal tax form You report on your U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form return this income as well as $56,000 of U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form source wages and an allowable $49,000 partnership loss from a U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form partnership. Download a 1040ez federal tax form Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. Download a 1040ez federal tax form You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. Download a 1040ez federal tax form If you deduct the foreign tax on your U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form You can take a credit of only $113 because of limits discussed later. Download a 1040ez federal tax form Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. Download a 1040ez federal tax form If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). Download a 1040ez federal tax form 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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form “Tax year” refers to the tax year for which your U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form return is filed, not the tax year for which your foreign return is filed. Download a 1040ez federal tax form Accrual method of accounting. Download a 1040ez federal tax form   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form Generally, this occurs on the last day of the tax year for which your foreign return is filed. Download a 1040ez federal tax form Contesting your foreign tax liability. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. Download a 1040ez federal tax form 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 . Download a 1040ez federal tax form You may have to post a bond. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. Download a 1040ez federal tax form Cash method of accounting. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form Choosing to take credit in the year taxes accrue. Download a 1040ez federal tax form   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. Download a 1040ez federal tax form You make the choice by checking the box in Part II of Form 1116. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. Download a 1040ez federal tax form You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form Credit based on taxes paid in earlier year. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form Example. Download a 1040ez federal tax form Last year you took the credit based on taxes paid. Download a 1040ez federal tax form This year you chose to take the credit based on taxes accrued. Download a 1040ez federal tax form During the year you paid foreign income taxes owed for last year. Download a 1040ez federal tax form You also accrued foreign income taxes for this year that you did not pay by the end of the year. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form Foreign Currency and Exchange Rates U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form income tax is imposed on income expressed in U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. Download a 1040ez federal tax form Therefore, fluctuations in the value of the foreign currency relative to the U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form dollar may affect the foreign tax credit. Download a 1040ez federal tax form Translating foreign currency into U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form dollars. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form S. Download a 1040ez federal tax form dollars. Download a 1040ez federal tax form How and when you do this depends on your functional currency. Download a 1040ez federal tax form In most cases, your functional currency is the U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form dollar unless you are required to use the currency of a foreign country. Download a 1040ez federal tax form   You must make all federal income tax determinations in your functional currency. Download a 1040ez federal tax form The U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form dollar is the functional currency for all taxpayers except some qualified business units. Download a 1040ez federal tax form A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. Download a 1040ez federal tax form Unless you are self-employed, your functional currency is the U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form dollar. Download a 1040ez federal tax form   Even if you are self-employed and have a qualified business unit, your functional currency is the U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form dollar if any of the following apply. Download a 1040ez federal tax form You conduct the business primarily in dollars. Download a 1040ez federal tax form The principal place of business is located in the United States. Download a 1040ez federal tax form You choose to or are required to use the dollar as your functional currency. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form   If your functional currency is the U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form dollar, you must immediately translate into dollars all items of income, expense, etc. Download a 1040ez federal tax form , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. Download a 1040ez federal tax form If there is more than one exchange rate, use the one that most properly reflects your income. Download a 1040ez federal tax form In most cases, you can get exchange rates from banks and U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form Embassies. Download a 1040ez federal tax form   If your functional currency is not the U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form dollar, make all income tax determinations in your functional currency. Download a 1040ez federal tax form At the end of the year, translate the results, such as income or loss, into U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form dollars to report on your income tax return. Download a 1040ez federal tax form    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form   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). Download a 1040ez federal tax form Exception. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. Download a 1040ez federal tax form The foreign taxes are paid on or after the first day of the tax year to which they relate. Download a 1040ez federal tax form The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. Download a 1040ez federal tax form The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). Download a 1040ez federal tax form (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. Download a 1040ez federal tax form )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. Download a 1040ez federal tax form Election to use exchange rate on date paid. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form If any of the accrued taxes are unpaid, you must translate them into U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form dollars using the exchange rate on the last day of the U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form tax year to which those taxes relate. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form S. Download a 1040ez federal tax form dollar functional currency. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form The election is available for tax years beginning after 2004. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form Make the election by attaching a statement to the applicable tax return. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form S. Download a 1040ez federal tax form dollar functional currency. Download a 1040ez federal tax form Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form foreign tax credit claimed. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form If a foreign tax redetermination occurs, a redetermination of your U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form tax liability is required if any of the following conditions apply. Download a 1040ez federal tax form The accrued taxes when paid differ from the amounts claimed as a credit. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. Download a 1040ez federal tax form You will not be allowed a credit for the unpaid taxes until you pay them. Download a 1040ez federal tax form When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form dollars using the exchange rate as of the date they were paid. Download a 1040ez federal tax form The foreign tax credit is allowed for the year to which the foreign tax relates. Download a 1040ez federal tax form See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. Download a 1040ez federal tax form The foreign taxes you paid are refunded in whole or in part. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form S. Download a 1040ez federal tax form tax year. Download a 1040ez federal tax form In this case, you must adjust your U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form tax in the tax year in which the accrued foreign taxes are paid. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form S. Download a 1040ez federal tax form tax liability for each tax year affected by the redetermination. Download a 1040ez federal tax form In most cases, you must file Form 1040X, Amended U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form tax liability for the year or years affected. Download a 1040ez federal tax form See Contents of statement , later. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form There are other exceptions to this requirement. Download a 1040ez federal tax form They are discussed later under Due date of notification to IRS . Download a 1040ez federal tax form Contents of statement. Download a 1040ez federal tax form   The statement must include all of the following. Download a 1040ez federal tax form Your name, address, and taxpayer identification number. Download a 1040ez federal tax form The tax year or years that are affected by the foreign tax redetermination. 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Download a 1040ez federal tax form   For foreign tax credit purposes, all qualified taxes paid to U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form possessions are considered foreign taxes. Download a 1040ez federal tax form For this purpose, U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form possessions include Puerto Rico and American Samoa. Download a 1040ez federal tax form   When the term “foreign country” is used in this publication, it includes U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form possessions unless otherwise stated. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form S. Download a 1040ez federal tax form possession. 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Download a 1040ez federal tax form   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. Download a 1040ez federal tax form These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form Beneficiary. Download a 1040ez federal tax form   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. 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Download a 1040ez federal tax form   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form   The term “subsidy” includes any type of benefit. Download a 1040ez federal tax form Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. Download a 1040ez federal tax form Shareholder receiving refund for corporate tax in integrated system. Download a 1040ez federal tax form   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. Download a 1040ez federal tax form You may be able to claim a refund of these taxes from the foreign government. Download a 1040ez federal tax form You must include the refund (including any amount withheld) in your income in the year received. Download a 1040ez federal tax form Any tax withheld from the refund is a qualified foreign tax. Download a 1040ez federal tax form Example. Download a 1040ez federal tax form You are a shareholder of a French corporation. Download a 1040ez federal tax form You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. Download a 1040ez federal tax form The French government imposes a 15% withholding tax ($15) on the refund you received. Download a 1040ez federal tax form You receive a check for $85. Download a 1040ez federal tax form You include $100 in your income. Download a 1040ez federal tax form The $15 of tax withheld is a qualified foreign tax. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form See Taxes in Lieu of Income Taxes , later. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form A foreign levy is an income tax only if it meets both of the following requirements. Download a 1040ez federal tax form It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. Download a 1040ez federal tax form The predominant character of the tax is that of an income tax in the U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form sense. Download a 1040ez federal tax form A foreign levy may meet these requirements even if the foreign tax law differs from U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form tax law. Download a 1040ez federal tax form The foreign law may include in income items that U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form law does not include, or it may allow certain exclusions or deductions that U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form law does not allow. Download a 1040ez federal tax form Specific economic benefit. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form   However, see the exception discussed later under Pension, unemployment, and disability fund payments . Download a 1040ez federal tax form Economic benefits. Download a 1040ez federal tax form   Economic benefits include the following. Download a 1040ez federal tax form Goods. Download a 1040ez federal tax form Services. Download a 1040ez federal tax form Fees or other payments. Download a 1040ez federal tax form Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. Download a 1040ez federal tax form Discharges of contractual obligations. Download a 1040ez federal tax form   In most cases, the right or privilege merely to engage in business is not an economic benefit. Download a 1040ez federal tax form Dual-capacity taxpayers. 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Download a 1040ez federal tax form   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. Download a 1040ez federal tax form Deductible expenses do not include the foreign housing deduction. Download a 1040ez federal tax form   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). Download a 1040ez federal tax form If the foreign law taxes foreign earned income and some other income (for example, earned income from U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form sources or a type of income not subject to U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form Example. Download a 1040ez federal tax form You are a U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form citizen and a cash basis taxpayer, employed by Company X and living in Country A. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form To find that part, do the following. Download a 1040ez federal tax form First, find the amount of business expenses allocable to excluded wages and therefore not deductible. Download a 1040ez federal tax form To do this, multiply the otherwise deductible expenses by a fraction. Download a 1040ez federal tax form That fraction is the excluded wages over your foreign earned income. Download a 1040ez federal tax form   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. Download a 1040ez federal tax form To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). Download a 1040ez federal tax form The result is $81,984. Download a 1040ez federal tax form 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). Download a 1040ez federal tax form Finally, multiply the foreign tax you paid by the resulting fraction. Download a 1040ez federal tax form   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. Download a 1040ez federal tax form Taxes on Income From Puerto Rico Exempt From U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form For information on figuring the reduction, see Publication 570. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form For more information on this exclusion, see Publication 570. Download a 1040ez federal tax form Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. Download a 1040ez federal tax form However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form However, you can claim an itemized deduction for these taxes. Download a 1040ez federal tax form See Choosing To Take Credit or Deduction , earlier. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form The following countries meet this description for 2013. Download a 1040ez federal tax form Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. Download a 1040ez federal tax form Cuba. Download a 1040ez federal tax form Iran. Download a 1040ez federal tax form Libya (but see Note later). Download a 1040ez federal tax form North Korea. Download a 1040ez federal tax form Sudan. Download a 1040ez federal tax form Syria. Download a 1040ez federal tax form Waiver of denial of the credit. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form S. Download a 1040ez federal tax form companies in the sanctioned country. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form Note. Download a 1040ez federal tax form Effective December 10, 2004, the President granted a waiver to Libya. Download a 1040ez federal tax form Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. Download a 1040ez federal tax form Limit on credit. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form You must fill out a separate Form 1116 for this income. Download a 1040ez federal tax form This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. Download a 1040ez federal tax form Example. Download a 1040ez federal tax form You lived and worked in Iran until August, when you were transferred to Italy. Download a 1040ez federal tax form You paid taxes to each country on the income earned in that country. Download a 1040ez federal tax form You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. Download a 1040ez federal tax form Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. Download a 1040ez federal tax form You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. Download a 1040ez federal tax form Figuring the credit when a sanction ends. Download a 1040ez federal tax form    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form Example. Download a 1040ez federal tax form The sanctions against Country X ended on July 31. Download a 1040ez federal tax form On August 19, you receive a distribution from a mutual fund of Country X income. Download a 1040ez federal tax form The fund paid Country X income tax for you on the distribution. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form Amounts for the nonsanctioned period. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. Download a 1040ez federal tax form   Number of nonsanctioned days in year  Number of days in year Example. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form Sanctions against Country X ended on July 11, 2013. Download a 1040ez federal tax form You are unable to determine how much of the income or tax is for the nonsanctioned period. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form You would compute the income for the nonsanctioned period as follows. Download a 1040ez federal tax form 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form Further information. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form This Cumulative Bulletin can be found in many libraries and IRS offices. Download a 1040ez federal tax form Table 1. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form 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). Download a 1040ez federal tax form 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. Download a 1040ez federal tax form If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form Withholding tax. Download a 1040ez federal tax form   For this purpose, withholding tax includes any tax determined on a gross basis. Download a 1040ez federal tax form It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Download a 1040ez federal tax form Ex-dividend date. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form Example 1. Download a 1040ez federal tax form You bought common stock from a foreign corporation on November 3. Download a 1040ez federal tax form You sold the stock on November 19. Download a 1040ez federal tax form You received a dividend on this stock because you owned it on the ex-dividend date of November 5. Download a 1040ez federal tax form 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). Download a 1040ez federal tax form Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. Download a 1040ez federal tax form Example 2. Download a 1040ez federal tax form The facts are the same as in Example 1 except that you sold the stock on November 14. Download a 1040ez federal tax form You held the stock for only 11 days. Download a 1040ez federal tax form You are not entitled to the credit. Download a 1040ez federal tax form Exception. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form See section 901(k)(4) of the Internal Revenue Code for more information. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form Withholding tax. Download a 1040ez federal tax form   For this purpose, withholding tax includes any tax determined on a gross basis. Download a 1040ez federal tax form It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Download a 1040ez federal tax form Exception for dealers. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form See section 901(I)(2) of the Internal Revenue Code for more information. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form tax purposes but not for foreign tax purposes. Download a 1040ez federal tax form For more information, see Internal Revenue Code section 901(m). Download a 1040ez federal tax form The IRS intends to issue guidance that will explain this provision in greater detail. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form For details, see Regulations section 1. Download a 1040ez federal tax form 901-3. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form See the instructions for line 12 in the Form 1116 instructions to figure this reduction. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form List of boycotting countries. Download a 1040ez federal tax form   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. Download a 1040ez federal tax form As of November 2013, the following countries are listed. Download a 1040ez federal tax form Iraq. Download a 1040ez federal tax form Kuwait. Download a 1040ez federal tax form Lebanon. Download a 1040ez federal tax form Libya. Download a 1040ez federal tax form Qatar. Download a 1040ez federal tax form Saudi Arabia. Download a 1040ez federal tax form Syria. Download a 1040ez federal tax form United Arab Emirates. Download a 1040ez federal tax form Yemen. Download a 1040ez federal tax form    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. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. Download a 1040ez federal tax form Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. Download a 1040ez federal tax form Public inspection. Download a 1040ez federal tax form   A determination and any related background file is open to public inspection. Download a 1040ez federal tax form However, your identity and certain other information will remain confidential. Download a 1040ez federal tax form Reporting requirements. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form A partnership in which you are a partner. Download a 1040ez federal tax form A trust you are treated as owning. Download a 1040ez federal tax form Form 5713 required. Download a 1040ez federal tax form   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. Download a 1040ez federal tax form See the Instructions for Form 5713 for information on when and where to file the form. Download a 1040ez federal tax form Penalty for failure to file. Download a 1040ez federal tax form   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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form S. Download a 1040ez federal tax form tax liability (Form 1040, line 44) divided by your worldwide taxable income. Download a 1040ez federal tax form You may be entitled to carry over to other years taxes reduced under this rule. Download a 1040ez federal tax form See Internal Revenue Code section 907(f). Download a 1040ez federal tax form Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. Download a 1040ez federal tax form Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. Download a 1040ez federal tax form Taxes of U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form See Penalty for not filing Form 5471 or Form 8865 , later. Download a 1040ez federal tax form U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form persons controlling foreign corporations. Download a 1040ez federal tax form   If you are a U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form S. Download a 1040ez federal tax form Persons With Respect To Certain Foreign Corporations. Download a 1040ez federal tax form 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. Download a 1040ez federal tax form U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form persons controlling foreign partnerships. Download a 1040ez federal tax form   If you are a U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form 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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Download a 1040ez federal tax form 5. Download a 1040ez federal tax form   Taxes Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: When To Deduct Taxes Real Estate TaxesSeparate elections. Download a 1040ez federal tax form Making the election. Download a 1040ez federal tax form Form 3115. Download a 1040ez federal tax form Income TaxesAccrual of contested income taxes. Download a 1040ez federal tax form Employment Taxes Other TaxesAdditional Medicare Tax. Download a 1040ez federal tax form What's New Additional Medicare Tax. Download a 1040ez federal tax form  Beginning in 2013, you must withhold a 0. Download a 1040ez federal tax form 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Download a 1040ez federal tax form Also, self-employed individuals may be required to pay Additional Medicare Tax on self-employment income. Download a 1040ez federal tax form See Employment Taxes , and Self-employment tax , later. Download a 1040ez federal tax form Introduction You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses. Download a 1040ez federal tax form You cannot deduct federal income taxes, estate and gift taxes, or state inheritance, legacy, and succession taxes. Download a 1040ez federal tax form Topics - This chapter discusses: When to deduct taxes Real estate taxes Income taxes Employment taxes Other taxes Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 334 Tax Guide for Small Business 510 Excise Taxes 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch SE (Form 1040) Self-Employment Tax 3115 Application for Change in Accounting Method 8959 Additional Medicare Tax See chapter 12 for information about getting publications and forms. Download a 1040ez federal tax form When To Deduct Taxes Generally, you can only deduct taxes in the year you pay them. Download a 1040ez federal tax form This applies whether you use the cash method or an accrual method of accounting. Download a 1040ez federal tax form Under an accrual method, you can deduct a tax before you pay it if you meet the exception for recurring items discussed under Economic Performance in Publication 538. Download a 1040ez federal tax form You can also elect to ratably accrue real estate taxes as discussed later under Real Estate Taxes . Download a 1040ez federal tax form Limit on accrual of taxes. Download a 1040ez federal tax form   A taxing jurisdiction can require the use of a date for accruing taxes that is earlier than the date it originally required. Download a 1040ez federal tax form However, if you use an accrual method, and can deduct the tax before you pay it, use the original accrual date for the year of change and all future years to determine when you can deduct the tax. Download a 1040ez federal tax form Example. Download a 1040ez federal tax form Your state imposes a tax on personal property used in a trade or business conducted in the state. Download a 1040ez federal tax form This tax is assessed and becomes a lien as of July 1 (accrual date). Download a 1040ez federal tax form In 2013, the state changed the assessment and lien dates from July 1, 2014, to December 31, 2013, for property tax year 2014. Download a 1040ez federal tax form Use the original accrual date (July 1, 2014) to determine when you can deduct the tax. Download a 1040ez federal tax form You must also use the July 1 accrual date for all future years to determine when you can deduct the tax. Download a 1040ez federal tax form Uniform capitalization rules. Download a 1040ez federal tax form   Uniform capitalization rules apply to certain taxpayers who produce real property or tangible personal property for use in a trade or business or for sale to customers. Download a 1040ez federal tax form They also apply to certain taxpayers who acquire property for resale. Download a 1040ez federal tax form Under these rules, you either include certain costs in inventory or capitalize certain expenses related to the property, such as taxes. Download a 1040ez federal tax form For more information, see chapter 1. Download a 1040ez federal tax form Carrying charges. Download a 1040ez federal tax form   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. Download a 1040ez federal tax form You can elect to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. Download a 1040ez federal tax form For more information, see chapter 7. Download a 1040ez federal tax form Refunds of taxes. Download a 1040ez federal tax form   If you receive a refund for any taxes you deducted in an earlier year, include the refund in income to the extent the deduction reduced your federal income tax in the earlier year. Download a 1040ez federal tax form For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1. Download a 1040ez federal tax form    You must include in income any interest you receive on tax refunds. Download a 1040ez federal tax form Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. Download a 1040ez federal tax form The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. Download a 1040ez federal tax form Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. Download a 1040ez federal tax form See Taxes for local benefits , later. Download a 1040ez federal tax form If you use an accrual method, you generally cannot accrue real estate taxes until you pay them to the government authority. Download a 1040ez federal tax form However, you can elect to ratably accrue the taxes during the year. Download a 1040ez federal tax form See Electing to ratably accrue , later. Download a 1040ez federal tax form Taxes for local benefits. Download a 1040ez federal tax form   Generally, you cannot deduct taxes charged for local benefits and improvements that tend to increase the value of your property. Download a 1040ez federal tax form These include assessments for streets, sidewalks, water mains, sewer lines, and public parking facilities. Download a 1040ez federal tax form You should increase the basis of your property by the amount of the assessment. Download a 1040ez federal tax form   You can deduct taxes for these local benefits only if the taxes are for maintenance, repairs, or interest charges related to those benefits. Download a 1040ez federal tax form If part of the tax is for maintenance, repairs, or interest, you must be able to show how much of the tax is for these expenses to claim a deduction for that part of the tax. Download a 1040ez federal tax form Example. Download a 1040ez federal tax form To improve downtown commercial business, Waterfront City converted a downtown business area street into an enclosed pedestrian mall. Download a 1040ez federal tax form The city assessed the full cost of construction, financed with 10-year bonds, against the affected properties. Download a 1040ez federal tax form The city is paying the principal and interest with the annual payments made by the property owners. Download a 1040ez federal tax form The assessments for construction costs are not deductible as taxes or as business expenses, but are depreciable capital expenses. Download a 1040ez federal tax form The part of the payments used to pay the interest charges on the bonds is deductible as taxes. Download a 1040ez federal tax form Charges for services. Download a 1040ez federal tax form   Water bills, sewerage, and other service charges assessed against your business property are not real estate taxes, but are deductible as business expenses. Download a 1040ez federal tax form Purchase or sale of real estate. Download a 1040ez federal tax form   If real estate is sold, the real estate taxes must be allocated between the buyer and the seller. Download a 1040ez federal tax form   The buyer and seller must allocate the real estate taxes according to the number of days in the real property tax year (the period to which the tax imposed relates) that each owned the property. Download a 1040ez federal tax form Treat the seller as paying the taxes up to but not including the date of sale. Download a 1040ez federal tax form Treat the buyer as paying the taxes beginning with the date of sale. Download a 1040ez federal tax form You can usually find this information on the settlement statement you received at closing. Download a 1040ez federal tax form   If you (the seller) use an accrual method and have not elected to ratably accrue real estate taxes, you are considered to have accrued your part of the tax on the date you sell the property. Download a 1040ez federal tax form Example. Download a 1040ez federal tax form Alberto Verde, a calendar year accrual method taxpayer, owns real estate in Olmo County. Download a 1040ez federal tax form He has not elected to ratably accrue property taxes. Download a 1040ez federal tax form November 30 of each year is the assessment and lien date for the current real property tax year, which is the calendar year. Download a 1040ez federal tax form He sold the property on June 30, 2013. Download a 1040ez federal tax form Under his accounting method he would not be able to claim a deduction for the taxes because the sale occurred before November 30. Download a 1040ez federal tax form He is treated as having accrued his part of the tax, 181/366  (January 1–June 29), on June 30, and he can deduct it for 2013. Download a 1040ez federal tax form Electing to ratably accrue. Download a 1040ez federal tax form   If you use an accrual method, you can elect to accrue real estate tax related to a definite period ratably over that period. Download a 1040ez federal tax form Example. Download a 1040ez federal tax form Juan Sanchez is a calendar year taxpayer who uses an accrual method. Download a 1040ez federal tax form His real estate taxes for the real property tax year, July 1, 2013, to June 30, 2014, are $1,200. Download a 1040ez federal tax form July 1 is the assessment and lien date. Download a 1040ez federal tax form If Juan elects to ratably accrue the taxes, $600 will accrue in 2013 ($1,200 × 6/12, July 1–December 31) and the balance will accrue in 2014. Download a 1040ez federal tax form Separate elections. Download a 1040ez federal tax form   You can elect to ratably accrue the taxes for each separate trade or business and for nonbusiness activities if you account for them separately. Download a 1040ez federal tax form Once you elect to ratably accrue real estate taxes, you must use that method unless you get permission from the IRS to change. Download a 1040ez federal tax form See Form 3115 , later. Download a 1040ez federal tax form Making the election. Download a 1040ez federal tax form   If you elect to ratably accrue the taxes for the first year in which you incur real estate taxes, attach a statement to your income tax return for that year. Download a 1040ez federal tax form The statement should show all the following items. Download a 1040ez federal tax form The trades or businesses to which the election applies and the accounting method or methods used. Download a 1040ez federal tax form The period to which the taxes relate. Download a 1040ez federal tax form The computation of the real estate tax deduction for that first year. Download a 1040ez federal tax form   Generally, you must file your return by the due date (including extensions). Download a 1040ez federal tax form However, if you timely filed your return for the year without electing to ratably accrue, you can still make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). Download a 1040ez federal tax form Attach the statement to the amended return and write “Filed pursuant to section 301. Download a 1040ez federal tax form 9100-2” on the statement. Download a 1040ez federal tax form File the amended return at the same address where you filed the original return. Download a 1040ez federal tax form Form 3115. Download a 1040ez federal tax form    If you elect to ratably accrue real estate taxes for a year after the first year in which you incur real estate taxes, or if you want to revoke your election to ratably accrue real estate taxes, file Form 3115. Download a 1040ez federal tax form For more information, including applicable time frames for filing, see the Instructions for Form 3115. Download a 1040ez federal tax form Note. Download a 1040ez federal tax form If you are filing an application for a change in accounting method filed after January 9, 2011, for a year of change ending after April 29, 2010, see Revenue Procedure 2011-14, 2011-4 I. Download a 1040ez federal tax form R. Download a 1040ez federal tax form B. Download a 1040ez federal tax form 330, as modified and clarified by Revenue Procedure 2012-19, 2012-14 I. Download a 1040ez federal tax form R. Download a 1040ez federal tax form B. Download a 1040ez federal tax form 689, and Revenue Procedure 2012-20, 2012-14 I. Download a 1040ez federal tax form R. Download a 1040ez federal tax form B. Download a 1040ez federal tax form 700, or any successor. Download a 1040ez federal tax form Revenue Procedure 2011-14 is available at  www. Download a 1040ez federal tax form irs. Download a 1040ez federal tax form gov/irb/2011-04IRB/ar08. Download a 1040ez federal tax form html. Download a 1040ez federal tax form Income Taxes This section discusses federal, state, local, and foreign income taxes. Download a 1040ez federal tax form Federal income taxes. Download a 1040ez federal tax form   You cannot deduct federal income taxes. Download a 1040ez federal tax form State and local income taxes. Download a 1040ez federal tax form   A corporation or partnership can deduct state and local income taxes imposed on the corporation or partnership as business expenses. Download a 1040ez federal tax form An individual can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Download a 1040ez federal tax form   However, an individual can deduct a state tax on gross income (as distinguished from net income) directly attributable to a trade or business as a business expense. Download a 1040ez federal tax form Accrual of contested income taxes. Download a 1040ez federal tax form   If you use an accrual method, and you contest a state or local income tax liability, you must accrue and deduct any contested amount in the tax year in which the liability is finally determined. Download a 1040ez federal tax form   If additional state or local income taxes for a prior year are assessed in a later year, you can deduct the taxes in the year in which they were originally imposed (the prior year) if the tax liability is not contested. Download a 1040ez federal tax form You cannot deduct them in the year in which the liability is finally determined. Download a 1040ez federal tax form    The filing of an income tax return is not considered a contest and, in the absence of an overt act of protest, you can deduct the tax in the prior year. Download a 1040ez federal tax form Also, you can deduct any additional taxes in the prior year if you do not show some affirmative evidence of denial of the liability. Download a 1040ez federal tax form   However, if you consistently deduct additional assessments in the year they are paid or finally determined (including those for which there was no contest), you must continue to do so. Download a 1040ez federal tax form You cannot take a deduction in the earlier year unless you receive permission to change your method of accounting. Download a 1040ez federal tax form For more information on accounting methods, see When Can I Deduct an Expense in chapter 1. Download a 1040ez federal tax form Foreign income taxes. Download a 1040ez federal tax form   Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form possession. Download a 1040ez federal tax form However, an individual cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form tax under the foreign earned income exclusion or the foreign housing exclusion. Download a 1040ez federal tax form For information on these exclusions, see Publication 54, Tax Guide for U. Download a 1040ez federal tax form S. Download a 1040ez federal tax form Citizens and Resident Aliens Abroad. Download a 1040ez federal tax form For information on the foreign tax credit, see Publication 514, Foreign Tax Credit for Individuals. Download a 1040ez federal tax form Employment Taxes If you have employees, you must withhold various taxes from your employees' pay. Download a 1040ez federal tax form Most employers must withhold their employees' share of social security, Medicare taxes, and Additional Medicare Tax (if applicable) along with state and federal income taxes. Download a 1040ez federal tax form You may also need to pay certain employment taxes from your own funds. Download a 1040ez federal tax form These include your share of social security and Medicare taxes as an employer, along with unemployment taxes. Download a 1040ez federal tax form Note. Download a 1040ez federal tax form Additional Medicare Tax is only imposed on the employee. Download a 1040ez federal tax form There is no employer share of Additional Medicare Tax. Download a 1040ez federal tax form Your deduction for wages paid is not reduced by the social security and Medicare taxes, Additional Medicare Tax, and income taxes you withhold from your employees. Download a 1040ez federal tax form You can deduct the employment taxes you must pay from your own funds as taxes. Download a 1040ez federal tax form Example. Download a 1040ez federal tax form You pay your employee $18,000 a year. Download a 1040ez federal tax form However, after you withhold various taxes, your employee receives $14,500. Download a 1040ez federal tax form You also pay an additional $1,500 in employment taxes. Download a 1040ez federal tax form You should deduct the full $18,000 as wages. Download a 1040ez federal tax form You can deduct the $1,500 you pay from your own funds as taxes. Download a 1040ez federal tax form For more information on employment taxes, see Publication 15 (Circular E). Download a 1040ez federal tax form Unemployment fund taxes. Download a 1040ez federal tax form   As an employer, you may have to make payments to a state unemployment compensation fund or to a state disability benefit fund. Download a 1040ez federal tax form Deduct these payments as taxes. Download a 1040ez federal tax form Other Taxes The following are other taxes you can deduct if you incur them in the ordinary course of your trade or business. Download a 1040ez federal tax form Excise taxes. Download a 1040ez federal tax form   Generally, you can deduct as a business expense all excise taxes that are ordinary and necessary expenses of carrying on your trade or business. Download a 1040ez federal tax form However, see Fuel taxes , later. Download a 1040ez federal tax form   For more information on excise taxes, see Publication 510. Download a 1040ez federal tax form Franchise taxes. Download a 1040ez federal tax form   You can deduct corporate franchise taxes as a business expense. Download a 1040ez federal tax form Fuel taxes. Download a 1040ez federal tax form   Generally, taxes on gasoline, diesel fuel, and other motor fuels that you use in your business are included as part of the cost of the fuel. Download a 1040ez federal tax form Do not deduct these taxes as a separate item. Download a 1040ez federal tax form   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. Download a 1040ez federal tax form For more information, see Publication 510. Download a 1040ez federal tax form Occupational taxes. Download a 1040ez federal tax form   You can deduct as a business expense an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. Download a 1040ez federal tax form Personal property tax. Download a 1040ez federal tax form   You can deduct any tax imposed by a state or local government on personal property used in your trade or business. Download a 1040ez federal tax form Sales tax. Download a 1040ez federal tax form   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. Download a 1040ez federal tax form If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. Download a 1040ez federal tax form If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. Download a 1040ez federal tax form If the property is depreciable, add the sales tax to the basis for depreciation. Download a 1040ez federal tax form For more information on basis, see Publication 551. Download a 1040ez federal tax form    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. Download a 1040ez federal tax form Also, do not include these taxes in gross receipts or sales. Download a 1040ez federal tax form Self-employment tax. Download a 1040ez federal tax form   You can deduct part of your self-employment tax as a business expense in figuring your adjusted gross income. Download a 1040ez federal tax form This deduction only affects your income tax. Download a 1040ez federal tax form It does not affect your net earnings from self-employment or your self-employment tax. Download a 1040ez federal tax form   To deduct the tax, enter on Form 1040, line 27, the amount shown on the Deduction for one-half of self-employment tax line of Schedule SE (Form 1040). Download a 1040ez federal tax form   For more information on self-employment tax, see Publication 334. Download a 1040ez federal tax form Additional Medicare Tax. Download a 1040ez federal tax form   Beginning in 2013, you may be required to pay Additional Medicare Tax on self-employment income. Download a 1040ez federal tax form See Form 8959 and the Instructions for Form 8959 for more information on the Additional Medicare Tax. Download a 1040ez federal tax form Prev  Up  Next   Home   More Online Publications