2022 TurboTax requiring Form 1116 for Foreign Tax Credit when it should not

[johnpd]

In previous versions of Turbo Tax any foreign taxes reported on my 1099-DIV would be applied as a foreign tax credit. This year it is trying to force me to include a Form 1116 when it should not be needed. These taxes are all related to passive income dividends from mutual type funds. The amount of tax is about $112. When I look at the 1099-DIV Worksheet, it is asking for information and the instructions are not very specific. In box 7 it shows the foreign tax paid and indicates that "All income is considered passive". Line "a" is checked if I you want to take the amount as a deduction (which I don't). The box has a red indicator in it. Line "b" indicates to double-click to link to Form 1116. I don't want that either, nor  Line "c". Line "d" indicates to enter "Foreign source amount included in dividends". I assume that is the amount of dividends that were paid by any funds that deducted foreign taxes. Box 8 also seems to refer to information for Form 1116. I tried putting in info there, especially checking the tax is from a mutual fund or regulated investment company. It generates a "RIC" in the far right field.

I am at a loss as to what Turbo Tax wants here. If I go to Form 1116, it asks for the name of the country from which the dividends were paid. You don't get that from the 1099-DIV. All it says is "Various".

So what do I have to do to get the credit without having to go through the very complicated Form 1116.

JohnD

[johnpd]

Never mind. I did the link to Form 1116. I doubled-clicked on the box on Line 7b and it created a link to a Form 1116 (Copy 1). It also cleared the red indicator on the previous line to select to put the taxes on Schedule A. "COPY 1" showed in the entry box on Line 7b. An "X" was entered in Box "A" on Line 7c. I had entered the dividends related to the foreign dividends in Line 7d and checked the box in Line 8. When I looked at Form 1116, everything was filled out except I had to check that the taxes were "paid" not accrued and I had to put in a date (I used 12/31/2022 as the dividends were paid throughout the year). So I got my $112 credit (actually it was rounded up to $113) and it appeared on Schedule 3. It would be nice if the instructions were a little clearer on what needed to be done here.

JohnD

[johnpd]

This is going from bad to worse. Now TT is generating a Form 6251 (Alternative Minimum Tax). I never had that before. I never had filed a Form 1116 before either. I have had foreign tax credits for several years. It was easily picked up on the 1040. F6251 is asking me if I want to elect the "AMT Simplified Foreign Tax Credit Limitation". What is that all about? How do you answer that? When will this stop?

JohnD

[ThomasM125]

The simplifed method allows you to receive your foreign tax credit without going throught the trouble of completing form 1116. If you choose that method, you will be allowed up to a $300 foreign tax credit if you are filing as a single individual, or up to $600 if you are filing a joint tax return. Also, if you aren't able to use the entire $300 or $600 credit in the current year you will not be able to carryover an unused loss to the following year.

[johnpd]

I had no option of not using the Form 1116. The options I had on the 1099-DIV Worksheet were to choose (1) plug the foreign tax into Schedule A as a deduction or (2) generate a F1116 to get the credit. It would have been nice if the option to skip F1116 was available.

JohnD

[ThomasM125]

In response to the question about using the simplified method, you can answer "yes" and that may reduce the steps you need to wrap up the form 1116 and alternative minimum tax (AMT) entries.

[johnpd · Accepted solution]

I ended up filling out all the forms and Turbo Tax is now happy. I finally decided to select the simplified method but was bouncing between the step-by-step and forms input process trying to determine what was going on, so I don't know if I had stuck to the step-by-step whether it would have automatically generated all the additional forms. Step-by-step required selecting a country to which the taxes applied from a drop-down list. There was no "various" selection, but there apparently is a "RIC" selection, which stands for a Regulated investment Company (basically a financial company or brokerage doing your investments). I did not notice that and probably would not have understood what "RIC" meant at that time. After I had finished everything I finally found a Turbo Tax tutorial which explains the process. Take a look at this before you start the foreign tax process.

https://thefinancebuff.com/foreign-tax-credit-form-1116-turbotax.html

JohnD

[rhs3]

HELP . . . .. .....

IRS instructions explains to election to claim the foreign tax election without filing 1116. 

This specifies that the foreign taxes don't exceed $300 ( single ) .

We are instructed to enter the amount on Schedule 3  , line 1.

But when I do this TT takes me to a worksheet  with only two options : Deduction or 1116 .

1116  generates a much lower credit.

rhs3

[JulieS]

Yes, in some cases, Form 1116 is not required. If all of your foreign tax is less than $300 and reported on Form 1099-INT, 1099-DIV or Form K-1, and you have no exclusions or carry overs, you may not have to file Form 1116. 
 
If you want to check this, you can delete Form 1116 from your return and see if you can e-file without it.  This is how to do that:

1. Open your return, click on Tax Tools on the bottom of the left side menu.
2. Select Tools.
3. Click on Delete a form (third on the list at the bottom of the screen).
4. Find Form 1116 on the list of forms.
5. Click Delete to the right.
6. Confirm your Delete.
7. Click Continue in the lower right. 
8. Click Continue with my return.

At this point you should be able to complete your e-file. If your Form 1116 repopulates, you have a carryover from 2021, or another situation that requires the form, and will need to complete Form 1116.
 

[Deskandchairs]

JulieS

The solution seems speculative (has anyone successfully done this)

I am totally disappointed that TT does not support the exemption from filling Form 1116 for the small amounts permitted by the IRS.  This should be a simple election between using the exemption or Form 1116!!!

If one deletes form 1116 as you suggest, how/where is the foreign tax credit entered in TT?

[johnpd]

Foreign tax credits are reported on line 1 of Form 1040 Schedule 3. It says to attach Form 1116 "if required". I did not attach a Form 1116 as my amount was under $100.

JohnD

[Deskandchairs]

Thanks for your reply.

 I understand "not attaching" if you were filing a paper copy of your return.

TT essentially forced me to complete the Form 1116 even though I had a qualifying small credit.

How do you "not attach" or avoid the Form 1116 in TT?

[johnpd]

Well I don't rightly remember what I did. I know I looked at the form and maybe tried going through it. It is complicated. But I probably just deleted F1116 as it was not relevant and it is not one of the forms that appears in the saved PDF data of all forms I sent. The only reason you need the form is if you exceed the minimum for reporting on the form or have excess foreign tax credits which you can roll over to the following year.

Also the amount should appear in the 1099-DIV info from the firm that was handling your finances. That probably reproduces it to Schedule 3. So if you cannot enter it on Schedule 3, make sure it is part of the the amounts entered on the 1099-DIV  form.

Other than that you need some one more expert to give you some help.

JohnD

[atom]

I too solved it, but am not sure I can easily repeat the process. I started to experiment with creating a copy of 1116. By doing that I created a copy of 1116 that had FORM NOT REQUIRED TO BE FILED across the top, but still put $600. in a way that this amount ended up on Line 20 of 1040, after flowing through Schedule 3. Looks OK.