My 1st Million At 33 – yes, you can do it too

I just went through all of my stock accounts, and counted how much foreign taxes were paid and withheld. Since for married couple the limit for foreign tax credit is $600 (for single, it’s $300), I really have to make sure I stay below this amount before I forfeit this $600 after-tax money entirely.

And yak! It’s just early September, almost four more months to go, and I have $557.99 foreign tax withheld already! I have really hard time staying below $600 every year. I just invested about $28500 roughly, and the dividend alone from that is about $2950. Plus all other miscellaneous amounts from everywhere, my total dividends from Canada (15% foreign tax) so far in 2006 is $557.99 / 15% = $3720. I haven’t even counted any US dividends, and foreign tax dividends that didn’t have taxes withheld, plus royalty payments and MLP distribution that don’t get counted officially as dividends by IRS.

Although I would very much like to increase my holding in these high dividend stocks, I really hate to give up $600 for tax credit. Unfortunately if you just go $1 over, filing 1116 form will most likely result in disqualifying the entire $601 credit because these dividends are mostly coming from oil/gas trusts.

I think I’m going to shift or increase these investments into my two custodial accounts, each will have $300 credit limit available for my two children. I’d better do it really soon because I’m really too close to the limit. Selling such stocks for staying below $600 foreign tax credit sound really stupid. But I am too cheap to pay IRS $600.

Have you invested in any of the Canadian Royalty stocks, some of which are in my list? If you do, I don’t know how you stay below that limit. Just about some $25K to $40K will put you over the limit. The alternative solution would be to take the tax bite of 15%, and lived with the 15% discounted dividend rate.

Now I really need to figure out what to do with my dividend stocks. In a way, it’s a nice problem to have. But every year now I have to worry about this. And I kind of knew that I probably should have done this review maybe 2 months sooner. Gush, it’s just three stocks that we’re talking about, but each is paying 10%+.