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Step 1
Review Form 1099-DIV to make sure the taxable dividend income and capital gain distributions are correct. This form also reports your share of the foreign taxes paid on this income which you can claim as a foreign tax credit or deduct as an itemized deduction.
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Step 2
Check if you received Form 2439 for taxable undistributed capital gains. If the mutual fund paid income tax on the undistributed gains, these taxes are allocated to you based on your share of the gains.
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Step 3
Use Form 1116 to claim the foreign taxes paid, as shown on Form 1099-DIV, as a foreign tax credit (see Resources below to download this form from the IRS website). However, if the foreign source income was from interest and dividends and the foreign taxes paid were not more than $300, or $600 if married, you don't have to complete this form. Simply enter the credit directly on your Form 1040 tax return.
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Step 4
Show the foreign tax credit, as determined in Step 3, on line 51 of your Form 1040 tax return. You also have the option of deducting the foreign taxes paid as an itemized deduction rather than taking the credit, but the deduction will normally have a lower tax value.
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Step 5
Include on line 11 of Schedule D of your tax return any taxable undistributed capital gains which your mutual fund has reported to you on Form 2439 in Box 1a. Take the tax paid, as shown in Box 2 of Form 2439, as a tax credit on line 70 of Form 1040.
