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I am a Norwegian citizen who has been living and working in the US (California) as a resident alien since October 2014. These were my major sources of income in 2015:

  • Wages from my American employer
  • Rental income from a property I own in Norway
  • Deferred wages from my former Norwegian employer ("vacation wages", a result of the way PTO works in Norway - for tax purposes, it's equivalent to normal wages)

According to the tax treaty between Norway and the US (as far as I understand it, and also according to the Norwegian equivalent of the IRS), rental income is taxable only in the country where the property is located. I have also been given to understand that for US residents, their global wage income is taxable by the US, but one does qualify for a tax credit for foreign income that is being taxed in the originating country - and since my tax rate in Norway is higher than in the US, the credit should equal the taxes that are imposed by the US.

Unfortunately, although the Norwegian tax year for individuals matches the calendar year, they take a lot of time to process the tax filings, so my Norwegian tax receipts were unavailable at the time the US taxes had to be filed. Therefore, I hoped that that the proper way to file the US taxes was to report all the foreign income (both the rental income and the wages) without claiming credit for it (and be overtaxed), and to subsequently file an amended return in which I claim the credit (after I have received the Norwegian tax receipts and can prove that I have paid taxes to Norway).

Questions:

  • Is it the proper approach to first report all the foreign income and taking the tax hit, and to subsequently claim credit for it? (I should of course have asked this question before I filed the US taxes, but I somehow didn't think about this site at the time.)
  • If so: in order to reduce my amount of paperwork, can I wait until the filing of my 2016 taxes and only then claim tax credit for my foreign 2015 taxes (assuming that I'm okay with having the outstanding overtaxation until then), or do I have to file an amended 2015 return? (Form 1116 doesn't seem to let you indicate what tax year the foreign tax applies to, but I'm not sure if that implies that the foreign taxes have to apply to the tax year you're filing for or that the tax year doesn't matter...)
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    Side note: California does not follow the US's foreign tax treaties, meaning that living in California while earning foreign income will create some level double-taxation for you. – Grade 'Eh' Bacon Sep 26 '16 at 16:57
  • @Grade'Eh'Bacon: Thank you! I am aware that the tax treaty only applies to the federal level (so that the tax credit will only apply to federal taxes, not to state taxes), but I realize now that that knowledge was not reflected in my question. :-) – Aasmund Eldhuset Sep 26 '16 at 17:28
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In a situation like this the usual procedure is to file an extension instead of your tax return. When you get the Norwegian data then you file your real return. Note that the extension is only for the purposes of filing, not for paying--do your best to figure what you're actually going to owe and send that along with the extension request. (However, if you're not too badly off the "penalty" is simply interest from when you were supposed to pay to when you did pay.)

As for Form 1116--tax forms never let you pick a year. There's a different version for each year, get the right one.

  • +1; that's a good idea for my future filings! I do realize that the forms themselves are year-specific, but does that mean that if try to pull off the idea in the second question, I have to use the 2016 form (since I'll be filing for the tax year 2016) or the 2015 form (since I'll be claiming a tax credit for income from 2015), or does it mean that I can't claim tax credit for 2015 income on the 2016 return? – Aasmund Eldhuset Sep 25 '16 at 19:31
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    @AasmundEldhuset You use the form of the year that you are amending. – Loren Pechtel Sep 25 '16 at 19:33
  • Since you say "amending", you're implying that I can't do what I propose, but I have to file an amended 2015 return? – Aasmund Eldhuset Sep 25 '16 at 19:37
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    @AasmundEldhuset Yeah, you need to amend the 2015 return. – Loren Pechtel Sep 25 '16 at 19:38
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    To confirm: just like you must report income on the return for the year it was received (which can benefit you in cases like capital gains on stock -- you pay only when you sell or dispose of the stock), you must report deductions and credits on the return for the year they occurred. In fact because foreign tax is sometimes very complicated (much worse than yours) they allow amendment for that up to 10 years instead of the usual 3 year limit! – dave_thompson_085 Sep 26 '16 at 8:28

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