Does Form 1116 Line 18 calculate correctly? The IRS instructions allow adjustments to be made for qualified dividends yet the system does not appear to do this. Thoughts?

[JohnW152]

There are no known issues with the Form 1116, line 18 calculation.

As you suggest, when you have qualified dividends (or capital gains), adjustments may be needed before accounting for those amounts on line 18.

Please see the Worksheet for Line 18 (Worldwide Qualified Dividends and Capital Gains) and the rest of the text pertaining to individual taxpayers under Line 18 in the Instructions for Form 1116.

If your calculation doesn't match what TurboTax is providing, please provide more details, referencing the worksheet or other relevant portions of the instructions, if possible.

[grahamcotton]

Hello JohnW152,  

Currently line 18 appears to be just picking up line 15 of form 1040 (which is the starting point also for the Worksheet you mention). However, I have qualified dividends, which are shown on Line 3a of Form 1040, and I also have capital gains, which are shown in Schedule D -  So I presume this means I have made the entries correctly in the system. However, there doesn't appear to be any adjustment made for this - it is difficult to check for sure as TurboTax does not provide the "Worksheet for Line 18". 

There is also reference in the IRS instructions to the "Qualified Dividends and Capital Gain Tax Worksheet". This isn't provided in the TurboTax print copy but presumably is generated internally in order to calculate the taxes due. I have generated this form in order to calculate the taxes due and then this form is also used in completing the "Worksheet for Line 18".

Apologies that this is a bit wordy - pls let me know if there is something else that you need.

Thanks...

[TaxDavey]

I think I may have a similar problem as user grahamcotton.

I've been getting a small partial credit for the foreign taxes paid, but when I review the IRS instructions for Form 1116 it appears I should be using the Worksheet for Line 18.  I suspect this would lead to a greater tax credit / larger refund.  However, I don't have any idea how to invoke the worksheet while inside of TurboTax.  Is it possible to simply overwrite the amount in Line 18 of Form 1116 or does TurboTax actually contain the questions related to that worksheet for line 18? 

Regards,

[DaveF1006]

Line 18 is a calculated entry so it cannot be overridden. It is the amount that is based on your taxable income reported in Box 15 of your 1040, which is your adjusted gross income minus your standard/itemized adjustment. This is something that you would never adjust yourself unless you add or delete an income item in your return.

I suspect that you may be looking for a bigger credit but according to the IRS, they state that Your foreign tax credit cannot be more than your total U.S. tax liability multiplied by a fraction. The numerator of the fraction is your taxable income from sources outside the United States. The denominator is your total taxable income from U.S. and foreign sources. 

This determines the amount of foreign tax credit you may use for the year. This is why you receive a partial credit versus the full credit. If you have foreign taxes available for credit but you cannot use them because of the foreign tax credit limit, you may be able to carry them back to the previous tax year and forward to the next 10 tax years.  

@TaxDavey 

[grahamcotton]

Hello DaveF1006,

thanks for your reply but I believe that TaxDavey's question refers to my original question on this thread concerning how TurboTax calculates line 18 - which remains unanswered...

You are correct that the starting point for Line 18 is the income reported in Box 15 of Form 1040.  However, on the IRS form there is the following comment: "Caution: If you figured your tax using the lower rates on qualified dividends or capital gains, see instructions". These instructions lead you to a worksheet that allows you to adjust the value reported in Box 15 of Form 1040 to take into account qualified dividends and capital gains. This appears not to be done by the system, even though TurboTax does calculate the overall tax based on lower rates on qualified dividends and capital gains - so something appears amiss.

Can I request that you specifically look at the 'Caution' note on Line 18 and advise why TurboTax appears to ignore these instructions.

Thanks 

[TaxDavey]

I've learned (at least I think this is true) after reviewing the IRS instructions for Form 1116, that what (and how) you use Line 18 is related to what (and how) you use Line 1a.  See pages 10 & 11 along with pages 23 & 24 of the IRS instructions for Form 1116. 

I qualify for the "adjustment exception", but as I understand it, these exceptions are taken as a pair for lines 1a & 18, or not at all.  This (presumed fact) leads me to be better off by not using the worksheet for line 18. 

None of this answers how one would invoke the Worksheet for Line 18 if a user would be better off using it.

TaxDavey. 

[grahamcotton]

Thanks TaxDavey. Your last statement is more accurate than my, somewhat emotive, question.

I agree with your evaluation that, except for a few exceptions, it is optional whether you use the worksheet for line 18 and also adjust values in Line 1a. I think that if your foreign taxes are not related to overseas qualified dividends and capital gains then it may be beneficial to take the option of using the Worksheet - this is my case.

So the more accurate question to the TurboTax experts is: For Form 1116, how does one invoke the Worksheet for Line 18 and any subsequent adjustment to Line 1a?

[AmyC]

Here is what the software guidance says that includes line 18 of Form 1116. For more information on Section 901 please see: Part 1 Section 901.—Taxes of Foreign Countries- IRS.

What is happening and what are you trying to accomplish with line 1A? Line 1A is entered as you go through the program and I am sure you know that. 

1. As you go through the 1116, you have one for each category of income.  You select the country,
2.  on the next screen select report income. 
3. Continue through the screens selecting source and income.

[grahamcotton]

Hello AmyC,

this question is not related to how lump sum distributions are handled (Form 4972) but how to invoke an option to report another value on Line 18 (per IRS guidelines) of Form 1116 - by using the Worksheet provided in the IRS instructions.

From the responses to this question to date it appears that TurboTax does not support this function. That's OK, as it is only an option, and for many people it is probably not an issue. However, people just need to be aware of this so that they can assess for themselves if they want to use a different tool for reporting their taxes.

[AmyC]

It is more complicated! Follow these steps:

1. Enter the information as a 1099-R to flow into the 1116. Use the worksheet, page 7, and follow the 1116 instructions.
2. For the 1116, you must select lump-sum distributions to mark box G and skip part I. 
3. Lump sum information is displayed, continue
4. Country summary, leave it blank - this relates to part I, select done
5. Taxes paid or accrued - select choice and continue
6. Other deductions not related- enter any you might have
7. Investment interest - any other interest expense
8. Continue answering questions

Remove the 1099-R income by making a negative entry under other miscellaneous income.

@grahamcotton 

[grahamcotton]

Blimey, you're right - it is complicated...

I tried following your instructions of completing a dummy 1099-R and selecting a Lump-Sum distribution in Form 1116 and the system generated a different answer (but did not change Line 18 of Form 1116 which is where I believe the issue is).

I no doubt did not make the changes correctly as I did not know the answers to some of the questions related to the 1099-R (as I did not have one). Out of interest, did you test if this method triggered the Line 18 Worksheet?

[AmyC]

I'm sorry. My directions for the 1099-R  to handle this situation were straight from the program. I did work with the Form 116 and see that Line 18 has limited triggers. 

• Form 1116 Line C of the Lump Sum distributions smart worksheet which includes the 4972.
• Sch D has lines 22,26, 33, 39, and 42
• Qualified dividend and capital gain tax lines 9, 17, and 20

Your situation is complicated. I believe you would prefer the desktop version where you can see everything in Forms mode and data source back to the issue. If you have already paid, your information will be saved online for next year. Then, you can contact support and tell them you need the desktop version. If you haven't paid, you can order the download.

Of course, you can always get help with a live expert or just hand over your taxes for someone else to finish, contact support.

[grahamcotton]

Hello AmyC,

thank you for further investigating and your suggestions. I'll probably look at the desktop version next year if my particular circumstances remain the same. I'm good for this year as I can complete the IRS on-line forms using most of the information generated by TurboTax with just the few adjustments for the Line 18 Worksheet option.

Thanks again.

[otikasi]

Using 2022 Desktop Deluxe and now that I understand what needs to be done LINE 18 in FORM 1116 (Foreign Tax Credit) does appear defective:  I have foreign earned income, No foreign passive investments i.e. Dividends or Capital gains, and my only USA income is passive from mutual funds (reported in a form 1099-DIV).  The program has all the data and creates a Foreign Credit Worksheet with a tick mark on ELIGIBLE FOR LINE 18  ADJUSTMENT  ( I meet both criteria)  .. but the program DOES NOT DO THE ADJUSTMENT.  I understand,  in my case (because I meet the criteria to adjust line 18)  it should subtract my 1099-DIV qualified Dividends and Capital Gains from the Total Foreign income in line 18 instead of just copying line 15 of the 1040.  Because of this problem I get only a fraction of my Foreign Taxes paid recognized as a credit and end up with a  NON ZERO  tax due , when  in reality it should be  NO Tax due .. I have used Turbi Tax for years and I never expected a "dumb" mistake like this.  Since you have an accuracy guarantee I would like to claim it (although I am not so naïve as to believe I will get anything other than excuses .... May be a refund of the price paid for the faulty product may be the least you could do.