United States

Form 1116

Foreign Tax Credit

Who Must File

US tax residents who paid or accrued foreign income taxes to Canada (or another country) and want to claim a credit against US tax.

Filed with Form 1040 by April 15 (or extended deadline)

No separate penalty, but failing to claim FTC results in double taxation

Identify each category of foreign-source income (general, passive, etc.).
Calculate total foreign taxes paid or accrued in each category.
Convert Canadian taxes to USD using the exchange rate on the date paid.
Complete a separate Form 1116 for each income category.
Calculate the FTC limitation: US tax x (foreign source income / worldwide income).
Carry back 1 year or forward 10 years any unused credit.
Attach all Forms 1116 to your Form 1040.

If total foreign taxes are under $300 ($600 MFJ) and all are passive, you can claim the credit directly on Form 1040 without 1116.
Keep Canadian T4, T5, and Notice of Assessment as proof of foreign tax paid.
Elect to claim either the credit (Form 1116) or the deduction (Schedule A), but not both in the same category.

Should I take the credit or the deduction?

The credit is almost always better because it reduces your US tax dollar-for-dollar, while the deduction only reduces taxable income.

Can I carry forward unused Foreign Tax Credits?

Yes. Unused credits carry back 1 year and forward 10 years. Track carryovers carefully across tax years.

Do Canadian provincial taxes qualify?

Yes. Both federal and provincial Canadian income taxes qualify as creditable foreign taxes on Form 1116.

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