Author Topic: Foreign Tax Credit on VTIAX?  (Read 7052 times)

The 585

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Foreign Tax Credit on VTIAX?
« on: February 20, 2017, 06:23:01 AM »
This was my first year investing in an international fund. I have ~$16,000 in VTIAX, and received a 2016 Foreign Tax Paid statement from Vanguard. The Foreign Tax is $12, Foreign Income $182, and "QDI eligible foreign income" is $131. Am I eligible for the Foreign Tax Credit, or is this amount too small? Is it even worth it?

I'm not sure what the criteria for qualifying is. Thanks!

SpareChange

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Re: Foreign Tax Credit on VTIAX?
« Reply #1 on: February 20, 2017, 09:45:25 AM »
Yes, you are eligible. It's easy. The amount in line 6 on your 1099-div goes on line 48 of your 1040. :)

The 585

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Re: Foreign Tax Credit on VTIAX?
« Reply #2 on: February 20, 2017, 10:38:07 AM »
How much do you get back from the Foreign Tax Credit? Is it limited to just the amount of foreign tax paid, so $12 in my case?

Ursus Major

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Re: Foreign Tax Credit on VTIAX?
« Reply #3 on: February 20, 2017, 10:47:54 AM »
How much do you get back from the Foreign Tax Credit? Is it limited to just the amount of foreign tax paid, so $12 in my case?

Yes, the amount of foreign taxes paid is the upper limit, so no free lunch. ;)

The 585

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Re: Foreign Tax Credit on VTIAX?
« Reply #4 on: February 20, 2017, 01:18:36 PM »
Thanks for the responses guys. I think H&R Block Online might charge for the "premium" package to include Form 1116 for Foreign Tax Credit, so I wanted to weigh whether it was worth it or not.

Ursus Major

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Re: Foreign Tax Credit on VTIAX?
« Reply #5 on: February 20, 2017, 01:33:04 PM »
Thanks for the responses guys. I think H&R Block Online might charge for the "premium" package to include Form 1116 for Foreign Tax Credit, so I wanted to weigh whether it was worth it or not.

I don't think you need to fill out form 1116. IIRC that is only required, if your foreign taxes withheld are above a certain level ($300 for single filers, $600 for MFJ, unless this had been changed). In your case it should be fine to just put in the number on form 1040. Of course H&R Block online might still attempt to charge for it...

MustacheAndaHalf

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Re: Foreign Tax Credit on VTIAX?
« Reply #6 on: February 23, 2017, 10:30:37 PM »
It looks like $16,000 invested in Vanguard Total Stock Market pays a lower amount of tax ($48) than the higher yielding Vanguard Total International ($72 in tax minus $12 foreign tax credit).

When I divide each dividend by each reinvestment share price, I get:
VTIAX has 3% dividends, VTSAX has 2% dividends.
Qualified dividends are taxed 15%, so that's VTIAX paying 0.45% tax and VTSAX paying 0.3% tax

On VTIAX you'd pay $16,000 x 0.0045 = $72 tax, minus $12 foreign tax credit, or $60 in taxes
On VTSAX you'd pay $16,000 x 0.003 = $48 in taxes.