Hi PK,
I did try and got nowhere. See if you agree with this logic:
The US taxes worldwide income. Assuming you worked the whole year in the US, and earned just wages (salary) and no other income, you should enter this amount in Box 1 of the 1040 (Y/N)?
Now, if you lived overseas and earned all your wages abroad, you should still show the same amount in Box 1 of 1040 but be able to declare on Form 1116 (or somewhere) that the entire amount was earned abroad (Y/N)?
In theory, the software should calculate a Federal Tax Due of some amount on the basis of the US income declared, however the declaration of taxes paid in the foreign country should generate a foreign tax credit in the same year, which can be used to offset the Federal Tax Liability (Y/N)?
For some reason, the program is not doing this.
It generated a Federal Tax Due once I completed the Wages and Income Section (the counter at the top of the program changed from $0 to a positive number. I then completed the Deductions and Credits section, specifically the Foreign Taxes Paid module of Estimates and Other Taxes Paid (in step-by-step view). The counter still showed the same Federal Tax Due.
If you go to Forms view, the Form 1116 shows: (1) Gross Income from the country I worked in is zero (Box 1a of 1116 – remember last time it indicated that it wanted to pull this number from Form 2555, this time it does not reference 2555, but the field is still blank), (2) Gross Foreign Source Income Box 3d is also zero, (3) Gross Income From All Sources Box 3e is also zero. Part III (Figuring the Credit) seems to be working: (1) it shows the correct foreign taxes paid in Line 9, (2) it shows the unused tax credit from last year in Line 10, (3) it adds both to generate a tax credit in line 14 (4x the tax liability).
The screwy piece seems to be Line 20 “Individuals: Enter the total of Form 1040 line 16 and Schedule 2 line 2). That entry is blank. As a result, Line 21 (the maximum amount of the credit is also zero). Finally, Line 24 is also zero…..in other words, there is no tax credit generated.
Long story short, having paid (US dollar equivalent) more than what I would have paid in federal taxes to UK government (deducted out of paycheck), I am still showing a tax liability in the US on a single source of income (wages
As mentioned, I used the online version last year with no issues. Thoughts?
If you can’t see where I am going wrong, I guess I will try to get a refund because this program is clearly not capable of doing the foreign tax credit piece
