Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, January 23, 1995 TAG: 9501250021
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
A: Generally, individual taxpayers are allowed to either deduct foreign income taxes paid or claim the foreign tax credit. The choice between these two methods is up to the taxpayer.
The deduction is claimed by filling in the amount of qualifying foreign income taxes paid on line eight of Schedule A, Itemized Deductions.
Individual taxpayers who cannot itemize deductions or who determine claiming the foreign tax credit may be more advantageous should obtain Form 1116, Foreign Tax Credit. Understanding the instructions to Form 1116 can be a daunting task. However, taxpayers with foreign income composed solely of dividend income from a single country (for example, England) should find the actual computation of the allowable credit less formidable. Once computed, the foreign tax credit is carried to line 43 of Form 1040, where it reduces the taxpayer's liability dollar-for-dollar.
For more information on how to figure the Foreign Tax Credit, obtain IRS Publication 514, Foreign Tax Credit for Individuals.
- Answered by Stan Boatwright of Lucas & Boatwright Q: In May 1994 my daughter purchased a house. She has a mortgage on which she will pay very much interest.
I borrowed $7,000 for her to pay down in the house, using an equity line loan against my house, which is paid for. She is making the payment on this loan, which is in my name.
Is there any way she can claim credit for the interest she is paying on the loan to use on her taxes? I file the standard deduction, so I don't need it.
A: Interest applicable to a residence is deductible if it is acquisition or home-equity indebtedness. To qualify as either of these, the debt must be secured by the residence. Since the loan your daughter is making payments on is not secured by her residence, the interest would not be deductible.
- Answered by Bill Brumfield of Foti, Flynn, Lowen & Co. Q: If a person is paid $250 a week, is he or she supposed to file taxes on this amount? Also, is anyone receiving $50 a week supposed to file taxes or not?
A: Filing requirements for most taxpayers will vary based on marital status, filing status, age and gross income. There are different filing requirements for dependents who have certain amounts of earned income (for example, wages) or unearned income (such as interest), or both. Finally, there are special situations where filing is required, such as tax credit recaptures alternative minimum tax or net earnings of at least $400 from self-employment.
Even if you are not required to file, there often is a reason you may want to file. For example, you may have had taxes withheld from your paycheck even though you owe no taxes. You can get a refund only if you file a return. In certain situations, you may also qualify for the earned income credit if you file.
Your question is too general to be answered specifically since there is no information as to marital status and other factors. However, a person receiving a wage of $250 a week would earn $13,000 annually and would be required to file under any situation.
For someone earning $50 a week, or $2,600 a year, a return would probably be required only if you are married filing separately or a special situation exists such as discussed earlier. Again, you may want to file if you had taxes withheld and wish to obtain a refund or qualify for the earned income credit.
- Answered by Terrence Clem of Miller, Morgan & Co. Tax-related questions from our readers are answered by members of the Roanoke chapter of the Virginia Society of Certified Public Accountants. This feature runs every Monday on the Money Page through April 10. Please send your questions to Tax Questions, Roanoke Times & World-News, P.O. Box 2491, Roanoke 24010.
by CNB