I have $5058 in foreign dividends (all qualified dividends), issued from stock I own through global employer stock program based in Switzerland). No capital gains (US or abroad) at all (didn't sell anything). I paid $1770 in Swiss taxes, as reported on my 1099-DIV form. But, when going through TurboTax, Line 1a (Form 1116) shows only $2734 in gross foreign income (rather than the $5058 I inputed per the 1099-DIV). This ultimately results in a foreign income credit far less than the $1770 I paid.
I know this is not an input error, as $5058 is reflected in Line 3d (of Form 1116), "gross foreign source income."
Anyone know where the $2734 number comes from? And why it would be different than $5058? I've looked at the form for underlying 1116 (Line 1a) worksheet and doesn't seem right to me.
The foreign income applies different deductions from your U.S. tax return that affect the pro rata share of gross foreign income.
Qualified dividends are taxed at the capital gains rate so there may be a rate difference.
Thanks. Appreciate hearing that this discrepancy may be expected. Do you know if there's any way to see the 1a Worksheet that TT used to derive 1a? My draft return just has the completed form 1116 and Foreign Tax Reconciliation Schedule...not the worksheet or steps TT used to derive 1a result. If I do the worksheet myself, I don't get the same result, so would want to see the numbers TT is using.
If you used TurboTax online, go to tax tools>tools> print center and here you have the options of printing or downloading all your worksheets.
If you use TurboTax software, go to to the black stripe at the top of the page and select print center. Here you also have the option to print or download your TurboTax return and all calculation worksheets.
Thanks. With the benefit of the worksheet, I was able to figure this out. Form 1116 Instructions say that you have to adjust foreign qualified dividends by a specific fraction unless you meet criteria to not adjust or meet adjustment exception. And I guess I didn't meet that criteria.
"How to make adjustments. To adjust your foreign source qualified dividends, multiply your foreign source qualified dividends in each separate category by 0.4054 if the foreign source qualified dividends are taxed at a rate of 15%, and by 0.5405 if they are taxed at a 20% rate. Include the results on line 1a."