@11486 , just to be sure,
(a) I created a dummy return with Social Security income, single tax payer, Dividend income of $20,000 and Foreign Taxes paid of US$ 300 ( the safe harbor amount for a single filer ). TurboTax automatically showed my tax amount ( the little Fed Tax box on top ribbon area).
(b) Then just for kicks I went to Deductions and Credits tab, chose " I will choose what I work on ", and selected " Foreign Tax Credit" and went through the screens to select "various" as foreign source income, Foreign income US$10,000 ( i.e. 10,000 out of the 20,000 dividend income ). Went to forms mode to see what Turbo has done -- it had filled out a Form 1116 ( copy-1 ) worksheet. Now I see that it has recognized the $300 as the foreign Taxes paid. and as credit / exception for line 18. Form 1040 worksheet shows the computed taxes and the credit of $300. Thus proving that TurboTax recognized the Foreign Tax Credit "Safe Harbor " amount.
(c) To your question about legality of recognizing incomes and expenses/ taxes paid --- While it is mandatory you recognize each and every income, there is no such requirement for taxes paid ( Foreign ) and/or expenses. This is generally expressed as " All income is taxable unless excluded by statute and all deductions are disallowed unless specifically allowed by statute".
So to answer your situation, try recognizing safe harbor amount for your filing status and see what TurboTax does.
pk
