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Reporting taxes paid to HK gov to the IRS

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  1. #1

    Reporting taxes paid to HK gov to the IRS

    I have a question regarding filing US taxes. If you do an IRS schedule A to deduct taxes paid to the Hong Kong government, how do you calculate those taxes paid?

    It seems tricky because the HK tax year is 2015-16, 2016-17 and part of HK taxes is an estimate for the coming year and part is for actual earned income for the previous year, etc. However, the US tax year is simply 2016.

    Perhaps I just enter the amount that I paid to HK gov in 2016 regardless of whether it is for 2015, 2016, or 2017 or some combination.


  2. #2

    Join Date
    Aug 2006
    Posts
    335

    Well, I have not used Schedule A for this. I use IRS Form 1116 "Foreign Tax Credit". Taking it as a credit instead of a deduction works much much better for me, as it can directly reduce the amount of tax I pay, rather than reducing the amount of income I pay tax on.

    Anyway, whether credit or deduction, I think you can choose to calculate based on either date paid or date accrued. Decide on one and stay with that.

    From the instructions for form 1116:

    Instead of claiming a credit for eligible foreign taxes, you can choose to deduct foreign income taxes. Form 1040 filers choosing to do so would deduct foreign income taxes on Schedule A (Form 1040), Itemized Deductions.
    If you want to change your election to take a deduction instead of a credit, or a credit instead of a deduction, you must do so within a special 10-year limitation period. [...] See Pub. 514 for more information.
    Generally, you can take a foreign tax credit in the tax year you paid or accrued the foreign taxes, depending on your method of accounting. If you report on the cash basis, you can choose to take the credit for accrued taxes by checking the “accrued” box in Part II. But once you choose to do this, you must credit foreign taxes in the year they accrue on all future returns.
    https://www.irs.gov/pub/irs-pdf/i1116.pdf

    Also - Publication 514, "Foreign Tax Credit for Individuals" is at https://www.irs.gov/pub/irs-pdf/p514.pdf
    Page 3 of that publication addresses your point as well.

    -Spode

    again - not a lawyer, not an accountant, not a tax expert, do due diligence, don't blame me for the planet exploding or anything else, it was the Vorgons!

  3. #3

    thanks Spode

    Good information. I think I will be switching to the Form 1116 for the credit rather than the deduction.

    Indeed if anything goes wrong with my filing, I will blame the Vorgons. Or D. Trump.

    spode likes this.