Foreign Tax Credit (FTC) calculation is not including my foreign income tax

[Faustus]

I have substantial foreign income tax for which I am trying to claim the Foreign Tax Credit. I am reporting taxes paid on both foreign income tax on wages and on foreign investment dividends. I have completed the Foreign Tax workflow, however TurboTax is only returning the credit derived from the dividends taxes.

[Faustus · Accepted solution]

Solved. The form 1116 for the wage income tax must be first in the list of 1116's.

There is a very frustrating bug which prevents the Foreign Tax Credit from being applied correctly. If one has foreign dividends income reported, and a form 1116 for reporting foreign tax has been generated for that first, before the foreign income tax in this phase, TT will not include the income tax paid in the calculation of the FTC. The 1116 form for the income tax has to be first in the list for TT to recognize it.

To resolve this, I had to:

1. In Income, delete any existing 1099-DIV with the foreign dividends. (TT will not let you delete 1116 forms that are referenced by existing 1099-DIVs.) You'll recreate these later.
2. In Deductions, make sure the associated 1116(s) is/are deleted
3. Reset the foreign tax credit reporting workflow (switching foreign tax handling to a deduction, then back to a credit did the trick.)
4. Report the foreign tax on your wage ("general") income. (The workflow that this thread is about.)
5. Go back to Income and re-enter your 1099-DIVs
   (I did this manually, because I did not trust that TT would not create duplicate entries if I imported them from my brokerage again.)
6. Go back to Deductions and go through the Foreign Tax workflow to complete the 1116s generated for dividend income.
7. Marvel at how much bigger your tax credit is now, even though it's the exact same data in the same forms, just a slightly different order in an arbitrary list. (Several thousand $'s difference in my case.)

I hope this helps somebody.

[FLI NG]

Hi All, 

When you go through the interview, you will see a question that says, " Other Gross Income" -And the country, you have to enter the gross income for each. That will fix the issues and you will have the foreign tax credit on both the 1040 and Form 1116. If you you leave the Other Gross Income blank, the Form 1116 will carryover all the taxes that you paid since the income is 0 on part I of the Form. 

Abe Woldesemayat...

[abemulugeta]

I missed the “Not” above. If you you leave the Other Gross Income blank, your gross income will not be carried to Form 1116 and you won’t have the foreign tax credit for the current year. All the foreign taxes you paid will be carried forward to be used as a credit because the income is 0 on part I of the Form. So you have to enter your gross income for each country in the “Other Gross Income”, don’t leave it blank thinking that you already entered the amount somewhere sense.

Abe Woldesemayat...