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Three (hopefully straightforward) tax questions

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  • Live Free MD Live Free MD 
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    I am preparing my taxes with TurboTax this year (as I’ve done every year), and I was hoping the group could help me with 3 questions.

    1.  For municipal bond and money market interest, TurboTax asks for the state in which this interest was earned.  Is this simply the state in which I reside?

    2.  I own VTIAX (Vanguard total international fund) in my taxable brokerage account. To claim the foreign tax credit, TurboTax asks for my gross income from foreign sources.  Is this simply the total dividends from VTIAX?

    3.  I want to max out the employER portion of my individual 401k.  I calculated this amount as 20% of net self-employment income, where net self-employment income = Net profit – (1/2 * self-employment tax).  I calculated the self-employment tax manually using Schedule SE from the IRS website (https://www.irs.gov/pub/irs-pdf/f1040sse.pdf).  The maximum employer individual 401k contribution that I calculated manually is the same number that I get from using the calculator on Mike Piper’s website (https://obliviousinvestor.com/solo-401k-contribution-calculator/).  Is there anything else I need to be aware of when calculating my maximum employer contribution?  Apparently it is a huge debacle to fix if you over contribute to an individual 401k.

    Thank you!

    Sports Medicine Physician. Athlete. Big Mountain Enthusiast. Blogger at http://www.LiveFreeMD.com

    #189612 Reply
    Zaphod Zaphod 
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    For number 3 I always just check the box “maximize contribution” and call it a day.

    #189615 Reply
    Live Free MD Live Free MD 
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    For number 3 I always just check the box “maximize contribution” and call it a day.

    Click to expand…

    Yes, I noticed that there is a box for “Maximize Keogh contribution”.  This number agrees with the manual calculation using schedule SE, as well as Mike Piper’s calculator.

    Sports Medicine Physician. Athlete. Big Mountain Enthusiast. Blogger at http://www.LiveFreeMD.com

    #189616 Reply
    Avatar Peds 
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    1 yes
    2 no I think they mean other sources
    3 that works

    #189634 Reply
    Avatar spiritrider 
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    One caveat, depending on what type of retirement plan(s) your primary employer has.

    One-participant 401k employer contributions are limited to; the annual addition limit (2018 = $55K) – any 403b annual additions (employee + employer contributions).

    I have no idea why tax software doesn’t take this into consideration, because they have your W-2 Box 12 codes E (403b deferral) and BB (403b designated Roth contributions).

    #189648 Reply
    Vagabond MD Vagabond MD 
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    Regarding #1, this likely means the state in which the fund earned the interest. Unless it is a single state money market or municipal bond/fund, the answer is “various”.

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #189676 Reply
    Live Free MD Live Free MD 
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    Regarding question number two, the Vanguard 1099–DIV lists foreign income as a number close to but not identical to total dividends provided by VTIAX. This contributes to my confusion.

    Sports Medicine Physician. Athlete. Big Mountain Enthusiast. Blogger at http://www.LiveFreeMD.com

    #189713 Reply
    Avatar G 
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    Vanguard 1099–DIV lists foreign income

    Click to expand…

    FWIW, that number appears to be what my accountant uses.

    #189729 Reply
    Avatar ITEngineer 
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    2. I own VTIAX (Vanguard total international fund) in my taxable brokerage account. To claim the foreign tax credit, TurboTax asks for my gross income from foreign sources. Is this simply the total dividends from VTIAX?

    Click to expand…

    The Foreign Tax Credit for dividends went away with the tax reform bill of 2017. It can no longer offset some of your federal taxes paid. I’m not sure what the gross income question is.

    #190840 Reply
    The White Coat Investor The White Coat Investor 
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    Vanguard 1099–DIV lists foreign income 

    Click to expand…

    FWIW, that number appears to be what my accountant uses.

    Click to expand…

    That’s the number I use.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #190859 Reply
    The White Coat Investor The White Coat Investor 
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    2. I own VTIAX (Vanguard total international fund) in my taxable brokerage account. To claim the foreign tax credit, TurboTax asks for my gross income from foreign sources. Is this simply the total dividends from VTIAX? 

    Click to expand…

    The Foreign Tax Credit for dividends went away with the tax reform bill of 2017. It can no longer offset some of your federal taxes paid. I’m not sure what the gross income question is.

    Click to expand…

    Say what? First I’ve heard of this. A search finds this:

    https://www.irs.gov/newsroom/irs-issues-proposed-regulations-on-foreign-tax-credits

    The 2017 Tax Cuts and Jobs Act (TCJA), legislation passed in December 2017, made major changes to the way the U.S. taxes foreign activities. Significant new provisions include a dividends-received deduction for dividends from foreign subsidiaries and the addition of Global Intangible Low-Taxed Income rules, which subject to current U.S. taxation certain foreign earnings that would have been deferred under previous law.

    The TCJA also modified the foreign tax credit rules, which allow U.S. taxpayers to offset their taxes by the amount of foreign income taxes paid or accrued, in several important ways to reflect the new international tax rules. These changes include repeal of rules for computing deemed-paid foreign tax credits on dividends on the basis of foreign subsidiaries’ cumulative pools of earnings and foreign taxes, and the addition of two separate foreign tax credit limitation categories for foreign branch income and amounts includible under the new Global Intangible Low-Taxed Income provisions. The TCJA also modified how taxable income is calculated for the foreign tax credit limitation by disregarding certain expenses related to income eligible for the dividends-received deduction and repealing the use of the fair market value method for allocating interest expense. The new foreign tax credit rules apply to 2018 and future years.

     

    Not sure I’m seeing what you’re saying there.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #190860 Reply
    Avatar ITEngineer 
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    Not sure I’m seeing what you’re saying there.

    Click to expand…

    It looks like I’m 100% wrong. I’m glad to be wrong in this case. Sorry for the misinformation. Feel free to delete my comment if you wish.

    #190988 Reply
    Liked by DCdoc, Peds
    The White Coat Investor The White Coat Investor 
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    Earnest refinancing bonus
    Not sure I’m seeing what you’re saying there. 

    Click to expand…

    It looks like I’m 100% wrong. I’m glad to be wrong in this case. Sorry for the misinformation. Feel free to delete my comment if you wish.

    Click to expand…

    There clearly was a change regarding the FTC. I’m not even sure I understand what the change was. But I don’t think it was just eliminated wholesale like you seemed to be saying.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #191151 Reply
    Live Free MD Live Free MD 
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    Thank you all for the responses.

    According to TurboTax (and their team of accountants and tax professionals), the Foreign Tax Credit is alive and well.

    One interesting thing I learned this year is that if your foreign tax credit is over $300 (Single) or $600 (MFJ), you need to fill out form 1116.  This seemed to be a cumbersome process for TurboTax to handle (or maybe it is just my ineptitude).  https://turbotax.intuit.com/tax-tips/military/filing-irs-form-1116-to-claim-the-foreign-tax-credit/L2ODfqp89

    Sports Medicine Physician. Athlete. Big Mountain Enthusiast. Blogger at http://www.LiveFreeMD.com

    #191621 Reply

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