Credit on foreign tax paid: Turbotax does not allow one to list multiple countries and itemize the taxes paid in each one.

[billybobhouston]

After selecting countries listed in 1099-DIV to which my broker paid foreign taxes (to get a credit for the foreign taxes paid on dividends from other countries), the program asks you to "select all countries to which you paid foreign tax o dividends reported on Form 1099-DIV." But if you enter multiple countries, the next page, entitled "Income From Foreign Counties," asks you to "select a country from the list [of the countries you've just entered] on which to report each Form 1099-DIV."  The problem is that the supplemental info on a 1099-DIV from a broker lists the income from EACH country. If you had $10 in income from Italy and $20 from France, you would select Italy, type in $10 . . . and then all the other countries disappear from the list.  In other words, you are not able, in this example, to enter the info on France (or any other countries).

[rogge1722]

Here is a suggested technique to enter the data for foreign tax credit.

There are X distinct countries. Each country will occupy 1 column in form 1116.

The arrangement is to create X fictitious 1099-DIV’s, each to represent one distinct country.  The  main 1099-DIV will end up serving only U.S. sources.

Preparation:

I suggest getting the data ready on a spreadsheet.  To begin with, for reference, record the amount on both 1099’s boxes 1a, 1b and box 7.  Also the amount in schedule B, line 6.

On the spreadsheet, dedicate one column for each country.

Let’s assume that column A is for Canada.  From the broker’s supplemental info, insert the ordinary dividends in box 1a.  If Canada should be on more than one 1099, then  enter them separately then add them up.  Do the same for all qualified dividends in box 1b and taxes paid in box 7.  These amounts must then be subtracted from the respective 1099’s so that the totals remain constant.

In column B, repeat the same format for the country it represents. Continue on with column C, etc. to the end.

The subtractions can be done piecemeal or any way you like, taking care that it is accurate.  When you are done, the main 1099’s will display only the U.S. amounts in box 1a, box 1b and in box 7, make sure they are empty.

Now bring up a blank 1099-DIV.  For clarity and convenience, name the payer “Canada.” Fill in box 1a, 1b, and box 7 from the spreadsheet data for Canada.  Repeat this format for the remaining 8 countries.

You are now ready to enter the foreign tax credit interview. As they are all passive category, they can be entered without regard to the amount of foreign tax paid as prior postings stated.  However, if there is any general category income, that would be an issue.  I’ll assume that’s not the case.

During the interview, you will come across a screen header “Report Foreign Tax Paid to (Country).  Underneath is “select” and “Dividends paid by”.  This screen can display only about 6 payers at a time.  The remaining payers are on a succeeding screen.  Also you may be asked to submit the date paid for each country. Use 12/31/2020.

[gloriah5200]

Yes, TurboTax does allow the listing of an endless list of countries.  You start by selecting that foreign taxes were paid by a country...enter the type of income, the amount of income and the amount of tax paid.

Both the credit and the deduction are entered in the same place. Here's what you do:

1. Make sure you've entered all your foreign income.
2. From within your return, search for foreign tax credit and select the Jump to link in the search results.
3. Answer Yes to Did you pay foreign taxes in 2020 or have credits to use from a prior year?
4. Follow the instructions to get the credit or deduction.

In most cases, taking the credit works out better than the deduction. We'll help you decide which one's best for you when you go through this section.

If you choose to take the credit (most people do), we'll attach Form 1116, Foreign Tax Credit if your situation requires it.

Note: You won't be able to take a credit or deduction for taxes paid (or accrued) on excluded foreign earned income or housing. This is because excluded income and housing isn't taxed in the first place.

Related Information:

• What does or doesn't qualify for the Foreign Tax Credit?
• Why doesn't the foreign tax credit show up on Schedule 3, Line 1 of my 1040?
• Can the Foreign Tax Credit be carried over or carried back?

Please refer to the additional information at the following link:

Where do I enter the foreign tax credit

IRS Instructions for Form 1116

[Jewelee1991]

Mr. Houston,

You are right. And no matter what seems to be entered, Turbo Tax wants more forms completed, which is not why we buy Turbo Tax, but Turbo Tax seems to want an endless amount of forms completed on information that is already entered. Something is amiss (no offense intended to the two fine people who have contributed in the responses below.)

[nikesyrena]

You are 100% correct. This is an idiotic process.  If your purpose  in using Turbo Tax is to demonstrate work arounds that  consume endless hours to compensate for the inability of the software to deal with this issue, then you win the Turbo Tax Geek of the Month award, but if you are like most of us and just want to get this **bleep** chore over with, then the work arounds are needless time consuming  BS.  I have complained about this ad nauseum for years but no avail.  It is a major software flaw.  Some simple suggestions are: sell all of your foreign stock, or  put it all together on s spread sheet   and make a single entry ( aggregate all dividends and all withholding and make one entry for country "various") and hope for the best.  Keep complaining and maybe they will fix it.  I almost want to let my accountant do it, but I find that actually doing my taxes every year reinforces my view that we are over taxed and over regulated by idiots who have no idea what they are doing. It is also useful for tax planning and having a full understanding of what the tax implications of your investments are

[Jewelee1991]

Thank you. Thought is was me.

Also, we need to stop companies from "transferring" offshore, but that's another war...

[LCircuit]

Really frustrating that Turbotax every year has same problem and never fixes it for its customers :( 

[nikesyrena]

I did my annual foreign tax credit ordeal and this year I just consolidated all of the dividends and all of the withholding taxes into a single entry ( let's say Germany).  It worked.   Then , my only problem was that  there seems to bee a requirement in the 1116 form for tax basis entries for which no data entry is called out by the software.  It will come up when you do your review.  Since my foreign dividends were from 5 different accounts ( 4 grantor trusts and a joint account), this took another 30 minutes since they want your total tax basis and then the portion that generates foreign income, whether or not there are withholding taxes ( UK, for example, does not withhold taxes on dividends). Good luck.  

[Jewelee1991]

I have the feeling Turbo Tax wants us to pay up for the next feature, but for most of us these taxes are such small amounts of money.  And, I don't think the tax code will get changed to our advantage....

[DaveF1006]

IT depends. How much do your foreign taxes add up to?

[LCircuit]

I think it really is not question of how much taxes add up or get saved, for most customers its to ensure filing is done properly with right data so that it leaves no room for IRS to ding people due to a software not able to handle this situation leaving customers jump hoops to duplicate forms and calculate manually. like IRS only expects Various if the 1099 doesn't provide information on the different countries, however if information is there its kind of implied that people are expected to report at individual country level. 

[nikesyrena]

The problem is not what the IRS wants, but that the software does not work when one tries to provide what the IRS wants.  The calculation of the allowable credit is the same whether it is reported as multiple countries or a single country.  The solution is to do a spread sheet and bunch all of your credits and report them all as one  country, which means to enter a separate 1099 Div for each country  as to which you had a foreign tax withheld from your dividends and then report it to the 1116 as a single country. 

[nikesyrena]

I had not tried it that way but I think what you suggest works.   

[segolden1]

I have $95 in foreign tax credit, much but not all from dividends, some from cap gains.  I would like to fill out a 1116, but TT locks me in to tacking the credit without form 1116; I assume because of the small $ amount.  But according to IRS, to avoid using 1116, the entire foreign taxes paid must be entirely from dividends.  I realize IRS is highly unlikely to audit this small amount but TT should do it right.  TT didn't even ask how much came from dividends.  Disappointed.  

[RobertB4444]

@segolden1  You're all good.  As long as the foreign taxes are reported on a 1099-DIV you should be set.  Here are the IRS qualifications for skipping the 1116 this year-

You may be able to claim the foreign tax credit without filing Form 1116. By making this election, the foreign tax credit limitation (lines 15 through 23 of the form) won't apply to you. This election is available only if you meet all of the following conditions.

• All of your foreign source gross income was “passive category income” (which includes most interest and dividends). See c. Passive Category Income, later. However, for this purpose, passive income also includes (a) income subject to the special rule for high-taxed income described later, and (b) certain export financing interest.

• All the income and any foreign taxes paid on it were reported to you on a qualified payee statement. Qualified payee statements include Form 1099-DIV, Form 1099-INT, Schedule K-1 (Form 1041), Schedule K-3 (Form 1065), Schedule K-3 (Form 1120-S), or similar substitute statements.

• Your total creditable foreign taxes aren't more than $300 ($600 if married filing a joint return).

Here is the original IRS publication.