topic Form 1116 line b and Self employment deductions? in Get your taxes done using TurboTax

Form 1116 line b and Self employment deductions?

WriteOffWarrior — Mon, 09 Feb 2026 19:34:13 GMT

Turbotax is limiting my credit for foreign tax paid, and I think it is in error and I should be able to correct it but a bit fearful of directly editing the form 1116.

Background: Turbotax home and business 2025 desktop; foreign (passive) income and foreign tax paid via vanguard mutual fund only. 100% SE income is solely US based income.

Turbotax is lumping the entirety of my SE deductions from schedule 1 onto 1116 line b: self employment taxes, SE health insurance, SE 401k. I believe this is incorrect, because those deductions are based 100% on US income. Turbotax interview never asks me about which should be included (or I'm missing it somehow). I guess I should be able to edit in forms mode 1116 and delete the entire amount on 3b, and add an explanation that this is all US based income?

My questions:

1. Is my understanding correct and the best/only way to handle it in turbotax?

2. Why the heck wouldn't turbotax handle this correctly by asking about these deductions income source, if it wasn't clear?

appreciate any replies!

Re: Form 1116 line b and Self employment deductions?

pk — Mon, 09 Feb 2026 22:11:02 GMT

@WriteOffWarrior , your understanding is generally correct in that form 1116 needs to have directly or otherwise collect the total foreign source income --- generally by country ( often the case for passive foreign incomes ). It should then be able to compute the applicable ratio of foreign source income to world income and use this to allocate US taxes for each foreign source income.

If you are comfortable working in the forms mode ( and for me the easiest way ) , just use the "1116 Comp Wks". This worksheet allows you to enter / edit amounts which then flow to the actual " form 1116 ( Copy 1)".

Use only the entry items and not the computed ones. You should be quite safe. However, just to be extra careful. I would suggest saving your return first ( save as with a different name ) , then open the original and work with that. If things go wrong , delete this working copy and use the saved version -- which has a different name but represents the original.

Good Luck.

Is there more I can do for you ?

Re: Form 1116 line b and Self employment deductions?

WriteOffWarrior — Tue, 10 Feb 2026 00:14:35 GMT

Thank you for the reply regarding the mechanics of editing the forms safely! I guess I was looking for answers more on the substance. Let me try to rephrase:

1. Deductions relating to self employment such as SE taxes, SE 401ks, SE healthcare that are wholly related to 100% USA SE income, should NOT appear on 1116 3b. Correct, or not?

2. If correct, is this a known TurboTax deficiency? If so it seems like a HUGE TurboTax error - it means it is doing it wrong for every Uber driver, hairdresser, consultant with US clients, etc. probably everyone who is SE who isn't working overseas or have international clients and who has to do 1116 - TurboTax is handling 1116 improperly. Or, is there some hidden trick to get TurboTax to prompt the user about the income and do form 1116 properly?

Re: Form 1116 line b and Self employment deductions?

sbs11 — Sat, 28 Feb 2026 14:29:59 GMT

I tried to modify form 1116 Comp Wks on line 3b(1). However, it cannot be modified. I tried both deleting the worksheet as well as the form and tried to recreate it, but it did not work. Can you tell me where exactly in the worksheet to edit it?

Re: Form 1116 line b and Self employment deductions?

DavidD66 — Tue, 10 Mar 2026 15:52:21 GMT

TurboTax is properly including Schedule 1 deductions on line 3b of Form 1116. These deductions include Self-Employment Tax, Self-Employed Health Insurance, and Self-Employed Retirement Plan. According to the IRS instructions for Form 1116, line 3b:

Enter on line 3b any other deductions that don’t definitely relate to any specific type of income (for example, deductions shown on Schedule 1 (Form 1040), Part II, Adjustments to Income)

You should not edit the worksheet to change this entry.

@WriteOffWarrior @sbs11

Re: Form 1116 line b and Self employment deductions?

sbs11 — Tue, 10 Mar 2026 17:25:39 GMT

Is that really true though? Self-Employment Tax, Self-Employed Health Insurance, and Self-Employed Retirement Plan are definitely related to the self-employment income. If I did not have that income, I would not have had these deductions.

If I had W2 from a corporation, those would have been deducted from my W2 earnings as pretax deductions and would not have shown up here.

So, I do not understand why these are not related to any specific type of income?

Re: Form 1116 line b and Self employment deductions?

pk — Tue, 10 Mar 2026 23:07:53 GMT

@sbs11 , I am not sure that I am understanding your comments / issue and therefore , please can you tell more of what you are trying to do.

As back-ground:

(a) form 1116 is really a computation mechanism to allocate/ identify US taxes on your foreign income ( because while tax treaties require US to give credit for Foreign Taxes paid, US chooses to recognize the full amount but allow ONLY that amount imposed by US on the doubly taxed income) and allow a max of that amount.

(b) It uses a ratio of foreign source income to world income to allocate your deductions ( standard or per Schedule--A ) and adjustments ( Per schedule- 1 /1A ) to Gross income from foreign sources.

(d) Now you can get a ratio of foreign source taxable income (s) to world source taxable income.

(e) This ratio(s) is now used to allocate the taxes imposed on the foreign source income(s).

The resultant available credit ( limited), is now available for use for the current year. However, note that FTC being a Non-Refundable credit, actual used amount may be further limited by available tax liability ( before application/use of FTC).

Given the above, I seek to understand your comments about FTC computation. I do not think SE adjustment is good example because SE adjustment should really be based on tax-home ( SE income is always where your tax-home is at the moment ). So please help me understand your issue.

Re: Form 1116 line b and Self employment deductions?

sbs11 — Mon, 16 Mar 2026 19:03:32 GMT

I only have self employment income in USA. I have a passive interest income from foreign country. Schedule 1 line 15, 16, and 17 have self employment tax, SEP, and health insurance deductions. I am taking a standard deduction.

All the adjustments to the income on line 15-17 are definitely tied to my US income and has no relation to foreign income/tax. Turbotax adds total of line 15-17 to line 3b other deductions in form 1116.

This is where my question is. Are those deductions non-specific to any income? If I had W2 with pretax deductions for health insurance and 401K contribution, would they show up here?

Re: Form 1116 line b and Self employment deductions?

DaveF1006 — Tue, 24 Mar 2026 18:49:10 GMT

In the eyes of the IRS, certain deductions are considered definitely related to a specific class of income, while others are not definitely related (general deductions).

Under IRS Publication 514, deductions like the standard deduction, home mortgage interest, and certain personal adjustments are pooled and then "ratably" allocated across all your income sources—domestic and foreign. These are definitely not definitely related deductions. Here are some other examples of not-definitely related deductions.

Deductible Part of Self-Employment Tax (Line 15): Even though this feels 100% tied to your US business, the IRS generally views the deductible portion of SE tax as a statutory adjustment that isn't "definitely related" to a specific income stream for the purposes of the Foreign Tax Credit.
SEP/Qualified Plans (Line 16): These are viewed as personal retirement choices. Since the money is being "saved" by the individual rather than being a direct "cost of goods sold" for the business, they are often lumped into the general pool on Line 3b.
Health Insurance (Line 17): Similar to the above, this is considered a personal expense that you are allowed to deduct because you are self-employed, rather than a direct business expense (like advertising or rent).

Pre-taxed retirement or health plans reported on a W2 are not reported as not definitely related because the gross income amount in Box 1 of the W2 already excludes this income that is reported in Box 1.

Even though you know your Sep contribution, deductible part of self-employment tax,and health insiurance came from your US business profits, the IRS treats it as a personal choice related to your overall financial life. Because it isn't a direct cost of generating the income (like a bank fee would be for interest income), it is pooled into Line 3b and spread across all your income, including your foreign interest.