Foreign Tax Credit - Adjustment Exceptions for Qulaified Dividends

Forum|Forum|5 years ago
February 26, 2021
6 replies
39 views

I am electing Foreign Tax Credit for foreign taxes paid. Single foreign income source is international mutual fund dividend distribution. Foreign Income - $29,246. QDI Eligible Foreign Income - $21,082. Foreign Tax Paid - $2,500.

TT Premiere interview and my inputs follow:

Country - RIC

Foreign Source Income - $29,246

Simplified Method - Yes

No Other Income or Expenses - Yes

Foreign Tax Paid - 13/31/2020

Carryover - No

After reading IRS Instructions for Form 1116, I conclude I am required to adjust my foreign income for Qualified Dividends because my foreign income exceeds $20,000 which means I don't meet one of the two Adjustment Exception requirements. This also seems to be supported by the TT HELP information provided for TT "Foreign Tax Computation Worksheet" when viewed in the FORMS display.

TT never asks for Qualified Dividend amount.

Does my Foreign Income amount need to be adjusted?

Note TT Help for the Comp Worksheet says:

"Foreign Qualified Dividends and/or Capital Gains Adjustment Smart Worksheet:

This box will automatically be checked if you are required to make adjustments for foreign qualified dividends or capital gains, and you do not meet the Adjustment Exceptions. Even if you meet the Adjustment Exceptions, you may elect to make the adjustments by checking this box. (This is not recommended.) This check box will disable the adjustment exception calculation in the Line 18 Smart Worksheet at the bottom of page 3 of this worksheet."

The "Make Adjustments" box is not checked. Should I switch to Forms View and check this box manually and then input my Qualified Dividend Amount or should I accept the Foreign Tax Credit is being computed correctly when simply answering the interview questions?

Best answer by rogge1722

Since the foreign qualified dividends are greater than $19,999, the adjustment must be made. Because you have Forms Mode, you can avoid going thru the interview.

Bring up the f1116 worksheet. Under Part 1, go to line 1h the “qualified div. and LT cap. gains.” Insert the 21k into the box. Notice that 1g now displays only the unqualified dividends and just stores this for later. The 21k goes into the algorithm and the amount subtracted from the 21k is displayed in line 1k and the remaining qualified dividends are displayed in line 1l. Then TT combines the unqualified amount from line 1g to the qualified amount in 1l and displays the total in line 1m. TT will also checkmark the smart worksheet indicating that the adjustment is required. Also TT will checkmark “B” in the line 18 adjustment worksheet near the bottom.

R

rogge1722Answer

Level 10

Since the foreign qualified dividends are greater than $19,999, the adjustment must be made. Because you have Forms Mode, you can avoid going thru the interview.

Bring up the f1116 worksheet. Under Part 1, go to line 1h the “qualified div. and LT cap. gains.” Insert the 21k into the box. Notice that 1g now displays only the unqualified dividends and just stores this for later. The 21k goes into the algorithm and the amount subtracted from the 21k is displayed in line 1k and the remaining qualified dividends are displayed in line 1l. Then TT combines the unqualified amount from line 1g to the qualified amount in 1l and displays the total in line 1m. TT will also checkmark the smart worksheet indicating that the adjustment is required. Also TT will checkmark “B” in the line 18 adjustment worksheet near the bottom.

K

K9baddogAuthor

Level 2

Thanks for assistance. TT did exactly what you described. I will submit return with adjustment.

Of course this make me want to know why the standard interview method did not yield this result. I have double checked my inputs and actually completed my return twice with the same result.

I am going to try to figure out if interview problem is:

Data entry error
TT application error

I plan to try manually entering 1099 rather than downloading it and i will also uninstall TT for Windows and install a fresh copy and do return again to see if same result. If anyone has experienced same issue or knows if this is a TT aplication issue, I would appreciate you informing me.

R

rogge1722

Level 10

Here is what appears is causing many users to miss the screen for entering LT qualified dividends.

When entering the foreign tax credit for the first time, when you arrive at the screen with the following header:

“No Other Income or Expenses”

If YES is selected, then the following screens headers appear before exiting.

“Foreign Taxes Paid”, “Carryovers”, “Foreign Taxes”.

If NO is selected, then the following screen headers appear:

“Completing Form 1116”, “Foreign Tax Credit Worksheet”, ”Choose Income Type”, “Country Summary”, then “Any Foreign Source Qualified Dividends or LT Cap. Gains.”