1099-DIV Foreign Tax Credit

[Rhone07]

I have two separate 1099-Div forms imported from my brokers. Each reflects Foreign Taxes paid from multiple jurisdictions (each has three countries). When using the Step-by-Step guide it asks for all the countries on Form 1099(s).  After entering all the countries. I select a country from the list of countries entered and it then asks to select one of my two brokerage  accounts. When the first country is complete I try to enter the data for the next country from the same 1099 DIV and the brokerage account is no longer listed as an option to select. 

Question, am I to report only an aggregate dollar value and list the countries as "various" or is this to be manually entered.

Kevin

[LindaS5247]

You could try to enter "RIC" or various for the countries.  I have seen both used.

The other workaround that is used is to create "Dummy" Forms 1099-DIV for each of the countries.  This workaround is as follows:

While using TurboTax where you have to fill out Form 1116, it can support only one country per Payer.  In the past, if there were more countries than Payers, using “Various” was the technique used to restore the 1 to 1 country/payer ratio. The following technique restores this 1 to 1 ratio by creating additional payers to equal the number of countries.

This addresses the issue of a 1099-DIV with Box 7 showing foreign tax paid to multiple foreign countries and it is necessary to identify and list the countries individually on Form 1116. This is done by utilizing "Dummy 1099-DIV's" as illustrated by the following example.

We have a 1099-DIV with Box 7 displaying the total tax paid to 3 foreign countries we will call “A”, “B”, and “C”.

Navigate to the “Here’s the dividend info we have so far” screen displaying the name of the Payer. This will be our Main Screen.  Bring the Payer up in EDIT mode.  Change Box 7 to the amount paid to  “A”.  Click “Continue “.  Either the Main Screen will appear or 2 consecutive screens asking for dividends paid and the source country.  If the latter occurs, insert the data for  “A”, then continue to the Main Screen.

Click on the New Payer button.  We will name this Payer “Dummy1”.  In Box 1a, put a zero.  This prevents TT from issuing an error. In Box 7, enter the tax paid to “B”.  Leave the remaining boxes blank. Click “Continue” back to the Main Screen.

Again open up a New Payer.  We will name this “Dummy2”.  Put a zero In Box 1a and in Box 7 the tax paid to “C”.  Click  “Continue” back to the Main Screen.

Now when we go to the Foreign Tax Credit Interview Section, we are positioned to enter all the necessary data for each country individually.

Now we consider countries “D”, “E”, “F” etc.  

If either of these solutions don't work please fell free to contact us back here on TurboTax Community or click here for information on Turbo Tax Support.

[Rhone07]

LindaS5247 - Thanks for the response. I had a couple of technical issues with the suggested solution, however, was an excellent framework to resolve my issue.

When I created the "Dummy" 1099-Div form and entered Zero in Box 1a, the total tax paid to country A in Box 7 and leaving all other boxes blank, on the 1116 Comp Wks TT would correctly enter the dividend for country A on line Part I 1h (Qual. Dividends and LT Capital Gains).  TT also entered the same amount on lines Part I: 1i (Section 1250 (25%) Capital Gains and Part I: 1j (Collectibles (28%) Capital Gains). It was no possible to override nor in the Step-by-Step process could I determine where it was picking it up for these two lines.

As a working around I went back to the Step by Step process and navigated to "Here's the dividend info we have so far" screen that displayed the Form 1099-Div from Schwab and the Dummy 1099-Div form I created.  There I edited the Schwab 1099-Div form, reducing the amount in Box 1a and 1b by the amount of dividends received from country  A.  I also reduce the amount in Box 7 by the Foreign Tax paid to country A.

In the Dummy 1099-Div form I entered the country A dividend in box 1a and 1b. In Box 7 was the Foreign Tax paid to country A.

These modifications seemed to correct the issue for me

Kevin

[Linthorn]

So this problem is an error in the software and has not been corrected since 2019.  I own a number of international stocks and so would have to set up 16 1099-DIV entries, all of which do not correspond to actual documents.  This needs to be fixed so that this isn't necessary.

[Hames]

Your kludge didn't work. As instructed I put a zero in Box 1a for Dummy1, and now it says, "Foreign source amount should not be larger than the dividends and capital gains reported on this Form 1099-DIV ($0.00). 

[Rhone07]

Hames-The short answer is it has worked for me the past two years. Perhaps my explanation needs some clarification. Part of my response dated 3/16/2023 refers to the guidance received from Linda on the same date as I also noted an issue with her explanation.

Let me clarify using my situation for tax year 2023 as an example.  My broker supplied 1099-DIV included two jurisdictions where I received foreign sourced dividends: Germany and RIC (covering ETFs with foreign sourced income). Since there were two countries or should I say reporting jurisdictions I needed to create a dummy 1099-DIV (Dummy 1) for one of the reporting entities.

For Dummy 1, in box 1a I entered the total dividends reported for one of the countries.  In box 1b, I entered the Qualified dividend for that country.  Box 7 includes the foreign tax paid on those dividends and box 7d reflects the total dividends from that country. Box 8 reflects the respective country.

To the extent that you have dividends from more than two countries additional dummy forms will be required.

Make certain to go back to the original 1099-DIV provided by the broker and adjust lower the amounts in Boxes 1a, 1b and 7 by the amounts entered in the dummy 1099-DIVs.

[Hames]

After submitting my question I came up with a workaround for the software deficiency, which I tired later. I changed Dummy1 to the actual company name, then I entered the dividend information for the dividends from that country and subtracted that from the original 1099-DIV of that company. That worked.

[orangerosy]

I tried your method of using the same Financial company in the dummy DIV and that worked for me.

But I am wondering about another odd aspect.

I had a total of $537.93 in foreign tax paid.  I only had to enter my two largest contributors to that foreign tax paid to get a credit of $538.

When I tried to enter more than one DUMMY DIV, my TT taxes to be paid went up instead of down because the foreign tax credit went down.
Why was that?
I followed the same approach of making sure I modified 1a, 1b and 7.

[AmyC]

The foreign tax credit uses gross income to total income and it uses lower of for the tax credit. Adding more forms increased your foreign income but did not help with the liability.

[ericgbirds]

If I reduce the amounts on my broker-supplied 1099-DIV by the amounts now appearing in the dummy 1099-DIVs, won't that trigger the IRS since the amounts in my 1099-DIV for my broker no longer match the number the broker reported to the IRS?

[Rhone07]

The cumulative totals of the dummy 1099-Divs and and the reduced amount on the original 1099-Div in Turbotax should equal what is reported on the brokerage form.  I have never had an issue.

For example, lets assume the broker reports $2,500 of foreign dividends on the 1099-Div. There are $750 from Canada, $650 from Brazil and $1,100 from Germany.  Lets say each are entered into individual Dummy 1099s, the total of the three 1099-Div form should equal $2,500.

I hope this helps.

[ericgbirds]

Thanks for your answer. Yes, I agree that the sum will be the same, but I didn't know if the IRS would complain that the 1099-DIV they received from my broker and the specific 1099-DIV I entered into Turbotax for my broker would no longer match. The IRS would have to notice the other 1099-DIVs and know to add these values into th 1099-DIV for my broker to match what my broker sent them. Probably not an issue (I hope).

[AmyC]

If your dummy DIVs match up to your actual total, that is what the IRS will see. The program input does not go to the IRS, just the tax forms. The worksheets don't even go.

As long as the right information is going on the tax form, the amount of dummy DIVs will not matter. Just be sure you are not increasing your foreign income, it should also remain the same to keep the correct tax value.

@ericgbirds