Turbotax: Foreign Income Declaration

 

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Q: Where does one declare foreign Income on Turbotax? A: Foreign Income slip under T slips as shown in the video...



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Relevant Materia; Foreign income must be declared by tax residents of Canada and the U.S., and doing so using software like TurboTax is crucial for legal compliance, avoiding severe penalties, and potentially claiming foreign tax credits to prevent double taxation. 

Significance of Declaring Foreign Income
For Canadian and U.S. tax residents, worldwide income is subject to taxation, regardless of where it was earned. 
  • Legal Requirement: Reporting foreign income and assets is a mandatory legal requirement for tax compliance.
  • Avoiding Penalties: Failing to report foreign income or specified foreign property can lead to substantial fines and penalties.
  • Preventing Tax Evasion: The Canada Revenue Agency (CRA) and the Internal Revenue Service (IRS) use this information to detect international tax evasion through information-sharing agreements with other countries.
  • Claiming Credits/Exclusions: Declaring foreign income allows taxpayers to utilize mechanisms like the Foreign Tax Credit (FTC) or the Foreign Earned Income Exclusion (FEIE) to offset foreign taxes paid and avoid paying tax on the same income twice (double taxation). 
Using TurboTax for Foreign Income Declaration 
TurboTax helps streamline the process of reporting foreign income and claiming eligible credits: 
  • Guided Entry: TurboTax provides prompts to guide users through reporting various types of foreign income (e.g., employment, interest, dividends, rental income) and taxes paid.
  • Form Preparation: The software helps prepare the necessary forms, such as the Canadian Form T2209 (Federal Foreign Tax Credits) or U.S. Form 1116 (Foreign Tax Credit) and Form 2555 (Foreign Earned Income Exclusion).
  • Currency Conversion: All foreign amounts must be converted to Canadian or U.S. dollars using the official exchange rate (e.g., from the Bank of Canada), and TurboTax facilitates these calculations.
  • Asset Reporting (Canada Only): If you are a Canadian resident who owns specified foreign property with a total cost of more than C$100,000 at any point in the year, TurboTax will guide you to complete Form T1135, the Foreign Income Verification Statement.  (Google) 
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