2 questions about the Foreign Tax Credit
Hello!
This is my first time trying to file with the Foreign Tax Credit (FTC). We’re Married Filing Jointly (MFJ), and we live outside of the US. The FTC is more advantageous for us than the Foreign Earned Income Exclusion (FEIE) because the FTC allows us to use credits for children and childcare expenses, which wouldn’t be possible if we used the FEIE instead of the FTC.
Most of our foreign income – about 75,000 USD – is from wages in the country where we live, which we’ll call Country 1. We also have a tiny bit of interest (about 13 USD) from a bank account in Country 2; Country 2 did not withhold any tax on that interest. And finally, we have about 10,000 USD in dividends and capital gains from US sources. Country 1, where we live, has taxed all our worldwide income, and the amount of foreign tax is about 1,700 USD.
So, to summarize:
- Of our 85,013 USD in income, 75,013 USD is foreign income, and 10,000 USD is US income.
- Of the 75,013 USD in foreign income, 75,000 USD is wages from Country 1, and 13 USD is interest from Country 2.
- In Country 1, we’ve accrued 1,700 USD on our worldwide income of 85,013 USD. No taxes are due in Country 2.
I have two questions.
- I entered the 13 USD worth of interest in TurboTax by indicating that’s it’s reported on a 1099-INT, even though we obviously didn’t get a real 1099-INT for this interest, since the interest is from a non-US bank account. But, since Country 2 withheld no taxes on that 13 USD, I have no idea how to indicate in TurboTax that this 13 USD is foreign income. If I pretend that foreign tax was withheld on the 13 USD and enter an untrue amount in Box 6 of the 1099-INT, then TurboTax will allow me to indicate that the entirety of the 13 USD was foreign interest, but in reality, no tax was withheld on this interest. In order to calculate the FTC limitation correctly, TurboTax needs to know that the 13 USD is foreign income and not US income. If I’ve understood correctly, foreign interest should be included in Form 1116 under Passive Category income. But when I create a Form 1116 for Passive Category income, I don’t know how to connect the form with the 1099-INT info that I entered previously, and TurboTax tells me very strictly, ‘Do _not_ enter any income already reported on Form 1099-INT’. In another thread on this forum, a poster suggested that to enter foreign interest into Form 1116, ‘There is an instruction [in TurboTax] to link each class of foreign income to a separate 1116 form. The first class to come up are 1099 INT.’ But this doesn’t happen for me, unless I enter a false amount in Box 6 (Foreign tax paid) of that 1099-INT. Is the solution to enter the true amount (zero) in Box 6 of the 1099-INT, and then simply to ignore the ‘Do _not_ enter any income already reported on Form 1099-INT’ and to create a Form 1116 for Passive Category income manually and enter the 13 USD from Country 2 there?
- In the TurboTax section on the FTC, I’m getting all sorts of questions about the Alternative Minimum Tax (AMT). But our total income – 85,013 USD – isn’t nearly high enough to trigger the AMT, right? If I understood correctly, since we’re filing MFJ, there’s no question of the AMT unless income is above 118,100 USD. What’s going on?
Thank you very much!
