How to properly report Foreign Income (Interest, Dividends, Capital Gains) on US taxes? Help with correct steps needed
I paid for a tax filing extension because I'm totally confused about how to correctly report my foreign income. Here's what I need to figure out: I have foreign interest income around $650 with foreign tax paid of about $95. No 1099 forms for these. I do have regular 1099-INT forms for my US-based interest income though. For foreign dividends, I received approximately $450 and paid about $520 in foreign taxes. Again, no 1099s for the foreign stuff, but I have all my 1099-DIV forms for US dividends. I also have foreign long-term capital gains of roughly $6700 with foreign tax paid of $720. No 1099 documents for this either. I don't have any US-based capital gains to report this year. I think I can report the foreign interest and dividends using the 1099-INT and 1099-DIV sections even without having actual 1099 forms, then connect everything through Form 8938, but I'm not confident this is the right approach. My biggest headache is figuring out how to report the foreign capital gains. I looked at Form 2555 but that doesn't seem to apply since I'm a US tax resident (stayed in the US for more than 330 days in 2023). So how does a US tax resident properly report foreign long-term capital gains and claim the corresponding Foreign Tax Credit for 2023? I've tried FreeTaxUSA and other tax software but haven't found clear instructions. Any help would be greatly appreciated! Thanks in advance.
18 comments
Join the conversation
Anastasia Fedorov
You're on the right track but I see why you're confused! Here's how to handle this: For your foreign interest and dividends, you report them on the same forms as your US income (Schedule B for interest and dividends). You'll include the foreign amounts along with your US amounts, but you'll need to identify the foreign source. For your foreign capital gains, you report these on Schedule D and Form 8949, just like US capital gains. The fact that they're foreign doesn't change which form you use - just make sure to properly identify them as foreign source. The key for claiming foreign tax credit is Form 1116. You'll need to complete separate Form 1116s for different income categories (passive income like interest/dividends would be one, and capital gains might be another depending on your situation). The Form 8938 you mentioned is for reporting foreign financial assets if you meet certain thresholds, but it doesn't replace reporting the actual income on the appropriate tax forms.
0 coins
StarStrider
•Thanks for this explanation. So if I'm using TurboTax, do I just enter these foreign amounts in the same sections where I enter my regular US dividends and interest? And for Form 1116, does the software walk you through that or is it something I need to specifically look for?
0 coins
Anastasia Fedorov
•TurboTax will allow you to enter foreign income in the same sections as your US income. When you enter dividend or interest income, there should be an option to indicate it's from a foreign source. For Form 1116, you'll need to specifically look for the Foreign Tax Credit section in TurboTax. The software should walk you through it, but you might need to search for "foreign tax credit" or "Form 1116" if it doesn't come up automatically. Make sure you have details about which countries the income came from, as you'll need to enter this information.
0 coins
Sean Doyle
I went through a similar situation last year and found https://taxr.ai incredibly helpful. I was totally lost trying to report foreign investment income with no 1099s, and the IRS instructions might as well have been written in another language lol. The tool helped me identify exactly which forms I needed and how to split up my foreign income into the right categories for Form 1116. It was a game-changer for figuring out how to handle the documentation requirements for foreign taxes paid, especially since I didn't have traditional 1099 forms. What I particularly liked was that it showed me how to properly separate passive income (interest and dividends) from the capital gains on my Form 1116, which makes a difference in how much foreign tax credit you can claim. Saved me from making some pretty big mistakes!
0 coins
Zara Rashid
•I'm in a similar boat but with rental income from overseas. Would taxr.ai handle that type of foreign income too? Also, how does it compare to just using something like H&R Block premium or TurboTax?
0 coins
Luca Romano
•How does it actually work? Do you upload documents or does it just give you general advice? I'm concerned because my foreign bank statements aren't in English and I'm not sure if I need to get them translated first.
0 coins
Sean Doyle
•The tool actually specializes in situations where you don't have standard US tax forms, so it would definitely help with rental income from overseas. The main difference from regular tax software is that it focuses specifically on handling international tax situations rather than just having it as one small feature. It helped me identify deductions and credits I would have completely missed in TurboTax. For your question about documents, you can upload your foreign statements even if they're not in English. The system can process the numerical data which is what matters most for tax purposes. It helped me extract the relevant numbers from my statements and showed me exactly where to report them in my tax return. I didn't need to get anything formally translated.
0 coins
Luca Romano
Just wanted to follow up and say that I tried taxr.ai after seeing this thread, and it was exactly what I needed! I was really struggling with reporting income from my investments in Japan, and the regular tax software wasn't giving me clear guidance. The tool walked me through separating my foreign income into the proper categories and showed me how to complete Form 1116 correctly. I was able to claim the foreign tax credit for all the taxes I paid overseas instead of being double-taxed. It recognized all my foreign bank statements and even flagged some potential FBAR filing requirements I hadn't considered. Really grateful for the recommendation - saved me a ton of stress and probably money too!
0 coins
Nia Jackson
If you're having trouble getting a clear answer from the IRS about how to report your foreign income, I'd recommend using Claimyr (https://claimyr.com). I spent weeks trying to get through to someone at the IRS who could help with my foreign investment reporting questions, and was getting nowhere. Claimyr got me connected to an actual IRS agent in under 15 minutes when I'd been trying for days on my own. The agent walked me through the exact process for reporting foreign capital gains without a 1099 and clarified the Form 1116 allocation requirements. You can see how it works here: https://youtu.be/_kiP6q8DX5c What surprised me was that the IRS agent actually provided clearer guidance than my tax preparer did! It was worth it just to get that official confirmation that I was doing things correctly.
0 coins
Mateo Hernandez
•Wait, this seems too good to be true. The IRS phone system is deliberately designed to be impossible. How does this service actually get you through? Are they using some kind of business line or something?
0 coins
CosmicCruiser
•I'm skeptical. Even if you get through to the IRS, there's no guarantee the person you speak with will actually know the answer to complex international tax questions. Most frontline IRS employees aren't international tax specialists.
0 coins
Nia Jackson
•It uses a system that continuously redials and navigates the IRS phone tree until it gets through to a human, then calls you to connect. It's basically doing what you'd do manually but with automation that's much more efficient. It's not using any special business line - just the regular IRS numbers. You make a good point about expertise levels. I specifically asked for the international tax department when connected. The first person I spoke with actually transferred me to someone who specialized in international issues. I made sure to take notes and get the agent's ID number for my records. While not every agent is an expert on everything, I found they had much better access to resources and information than I could find online.
0 coins
CosmicCruiser
I need to update my earlier comment. After being skeptical, I decided to try Claimyr myself because I was desperate for answers about reporting my foreign mutual funds (potential PFIC issues). I got connected to the IRS International department in about 20 minutes. The agent confirmed I needed to file Form 8621 for each fund and explained how to calculate the excess distribution. She even emailed me specific instructions for my situation, which I couldn't find anywhere online. I've been stressing about this for weeks, and in one phone call, I got clear direction on how to properly report everything. Honestly surprised this worked so well. Going to finish my return this weekend now that I have the right guidance.
0 coins
Aisha Khan
My tax advisor said to separate capital gains into their own Form 1116 category and not mix them with passive income like dividends. You'll get a better foreign tax credit that way because of how the limitations work. I learned this the hard way last year when I lumped everything together!
0 coins
Ethan Taylor
•Is that always true though? What if the foreign tax rate on the capital gains is lower than the US rate, but the foreign tax on dividends is higher? Wouldn't it sometimes be better to combine them in that case?
0 coins
Aisha Khan
•That's a really good question. It depends on the specific tax rates and your overall tax situation. Generally, keeping them separate gives you more flexibility and prevents a lower-taxed category from diluting the credit for a higher-taxed category. But you're right that there are situations where combining might work in your favor.
0 coins
Yuki Ito
Don't forget about FBAR filing requirements if your foreign accounts exceeded $10,000 combined at any point during the year! That's separate from your tax return and has huge penalties if missed. The deadline is April 15 with an automatic extension to October.
0 coins
Carmen Lopez
•And to add to this - FBAR is different from Form 8938 (FATCA). You might need to file both depending on your account balances. The thresholds are different and so are the filing methods. FBAR is filed electronically through FinCEN, not with your tax return.
0 coins