Share your experience with funds owning foreign dividend paying equities.

[tenant13]

I'm looking at expanding my international exposure and in the process I learned what a cluster...* foreign dividends could be from the US taxpayer perspective (https://www.thebalance.com/foreign-tax-credits-for-dividend-stocks-1978950). Given that I have IRA in mind I believe I should stay far away from any dividend paying funds as those can be tricky to deal with during tax time. For anyone owning these funds, how does claiming that tax credit look in practice? Examples: AWP, IDV, FAX.

 

[MichaelB]

Not sure why such strong rhetoric. It’s a foreign dividend, some countries will tax it. The tax paid can be used as a credit against US taxes. If the total amount of tax is more than $300, you need to fill out additional forms when filing. If it’s less than $300 you take it as a credit. You don’t want it in a tax deferred account because the foreign taxes paid can no longer be credited against US tax.

 

[tenant13]

Not sure why such strong rhetoric. It’s a foreign dividend, some countries will tax it. The tax paid can be used as a credit against US taxes. If the total amount of tax is more than $300, you need to fill out additional forms when filing. If it’s less than $300 you take it as a credit. You don’t want it in a tax deferred account because the foreign taxes paid can no longer be credited against US tax.

So how does it look in practice? Say you own one of these funds in your Schwab brokerage; do you get the div income report from Schwab or the fund? Is it the same form that is used for US dividends just with additional boxes filled (I assume amount of the tax withheld)? Does all that get easily/automatically imported into Turbo Tax? Is the additional form claiming tax credit available in TT?

 

[MichaelB]

Foreign tax paid is shown in box 7 of the 1099-DIV. If you use TurboTax and download directly from the brokerage, that data is included and TT uses it when preparing the return.

If the total tax paid is more than $300 you need to use form 1116, which is a bit more complicated. TT includes it but the prep require more user info.

 

[pb4uski]

+1 Not a problem at all. I had Vanguard Total International Stock for many years. Not tricky at all.

The total dividends and qualified dividends were included on a 1099-DIV as well as foreign taxes paid, which I got a tax credit for. In fact, since I was retired and in the 12% tax bracket, my foreign tax credit exceeded the tax on my non-qualified dividends... so with respect to my international stocks I had a negative net federal tax on my international stock dividends. And it is all automatically imported into Turbo Tax.

You really want to hold international equities in your taxable account... in tax-deferred or tax-free accounts the foreign tax credit can't be had and goes to waste.

But if you do own international equities in an IRA as you allude to in the OP, there are no tax implications or reporting at all... so I don't see what you are all wound up about. Chill.

 

[tenant13]

... so I don't see what you are all wound up about. Chill.

Not any more