I made my first pass through our taxes using the Federal Free File forms.
Specifically, we’ve got Section 199A dividends of $48 and Foreign Tax paid of $39. We are not itemizing this year (borderline this year, and I decided to keep it simple) and I’d rather not waste my time and energy filling out otherwise unneeded tax form 8995 for a pittance. It was bad enough working through the now even longer and more convoluted Schedule D worksheet and trying to figure out the Premium tax credit (ACA healthcare) again. Makes it tempting to give up on the Free File forms and go back to using Taxact or Turbotax. But, I’m cheap and I hate paying money to file my taxes. Perhaps I should just sell the funds that pay foreign taxes and Section 199A Dividends to make my life simpler in the future.
It’s always an option to overpay your taxes by not claiming all of the credits and deductions you are entitled to, as long as you are including all of your income.
That said, I would point out that the foreign tax credit can be claimed on Schedule 3 without filing Form 1116 if all of your foreign income is passive, it’s reported to you on a 1099-DIV, 1099-INT or other similar form that is also reported to the IRS, and the total foreign taxes paid are less than $300 ($600 for MFJ). As described, your situation seems to qualify. So if you are already filing Schedule 3 for another reason, like claiming ACA credits, it’s just a matter of putting the $39 on line 1 of Schedule 3.
With the QBI deduction for the Section 199A dividends, you do have to file Form 8995, so if you want to bypass that deduction because you don’t want to file an additional form to knock $5 (20% of the $48, rounded up) off of your income, that would be fine, and is actually unlikely to change your taxes, unless you are $5 or less over one of the cutoffs in the tax table in the Form 1040 instructions. If you are just over one of those brackets, adding the extra form could actually save you more than the $5, depending on your marginal rate, so the extra form may be worth it. For instance, if you are MFJ and your taxable ordinary income is $50,052, your ordinary income tax from the tax table will be $5,598. If you knock $5 off that ordinary income, so that your taxable ordinary income is $50,047, your ordinary income tax will be $5,592 - a $6 savings. Whether a $6 savings for knocking $5 off your income would be worth filing another form would be up to you.
Thanks. I guess the foreign tax credit is worth adding the one entry on schedule 3, which I would otherwise not be filing. Think I’ll bypass the 8995 for the 199A dividends, which is what I did last year. I can’t remember if that was intentional or out of ignorance, but either way, it’s not a lot of money.
One final comment: Don’t let the tax (preparation) tail wag the investment dog.
I would point out that unless Congress extends the QBI rules, the QBI (Section 199A) deduction is set to expire, along with most of the other TCJA provisions, as of 12/31/25. So, it’s not clear that getting rid of investments that generate 199A dividends will simplify your life in the long run, if you consider ‘the long run’ to be more than 3 years. In the mean time, since the deduction is only 20% of the total 199A dividends, if you are only generating a small amount, ignoring the deduction can simplify your life, if it’s unlikely to change your tax liability anyway.
And since the Foreign Tax Credit is relatively simple to claim, as long as your foreign taxes paid meet the criteria previously mentioned, it’s also not clear that getting rid of investments that pay foreign taxes will significantly simplify your life, either.
AJ is likely correct on matters pertaining ito taxes, but I have systematically unloaded holdings with foreign tax obligations as well as holdings requiring k-1s which always came late and delayed my document collection. I like the simplicity of collecting my last documents on February 15, handing them to my CPA, for electronic filing. I am retired and life is too short .
That is exactly what I would do. Sell them. Several years ago I had a REIT and for 2 or 3 years in a row it habitually would send me a 1099 a week or two after I had filed my return. Hey man, life is too short. I got super tired of filing amended returns. I wised up and sold that sucker. Why they let these jerk legs do that is beyond me. Used to be all 1099’s etc had to be in your hands by 1/31 but no, no longer. And guess who continues to have an April 15th deadline?