Foreign Tax Credit Not Used by Turbotax Premier 2023

[zatakan]

I transferred all my Dividends received from Merrill Edge to Turbotax Premier. I noticed that foreign Tax I paid has not been taken into account by Turbotax. The foreign Country (France) taxes paid were over $1,400. Whether you include the tax amount or not, or add smaller or bigger amount, it makes no difference to the calculations. I still have the same Refund for my entire taxes. I also tried both "other source" and "RIC" options and no change to the calculations.

Can you please help to understand why Turbotax is doing this? It seems it is not using Form 1116 at all.

[DaveF1006]

It depends. It might be that you were not able to utilize the foreign tax credit this year and that the entire amount of your credit is a carryover that can  be carried back one year or carry forward for the next ten years. 

The IRS limits the foreign tax credit you can claim to the lesser of the amount of foreign taxes paid or the U.S. tax liability on the foreign income. The excess limit is created when the U.S. taxes on that foreign income are greater than the foreign taxes paid. 

To verify if you have a carryover in Turbo Tax Online, go to tax tools>tools>delete a form. Verify if you have a Schedule B Form 1116 in your list of forms.  If you do, then you have a carryover, unless you have carryovers from prior yeas.

If you are using the software, go to the forms mode in your software and look in your list of forms. Schedule B Form 1116 should be a form listed in your return.

[ssffnn]

On 1099 DIV worksheet box 7 you can find the reference to Form 1116.

Line d. Declare your total foreign income (out of the total in BOX 1a) received from this particular source (a brokerage firm, e.g Fidelity), and also enter the foreign tax paid in the first line of Box 7.

Line b. choose the Form 1116 option, which is generate a tax credit, instead of claiming it on Schedule A (option a.). TT generates the form once you choose this option. 

Line c. If you have foreign income from more than one country   (e.g. Schwab, holding another foreign stock of yours ) then put these different ones in different columns, A,B, C in Form 1116. You will also check off the corresponding columns in 1099 DIV 

[zatakan]

That worked. Thank you for the guidance.

I have one more question related to Foreign Tax Credit. Where can I input expenses such as Depository Bank Fees? I input this in "Other Interest Expense" section in "Foreign Taxes" but TurboTax is not deducting this amount. Is there another place that I can input this? 

Thank you

[ssffnn]

Form 1116 does not have an entry for that (apart from K-1,business and corp).

AI's answer (Copilot) is "Bank fees incurred to process your foreign stock dividends are generally not tax-deductible. Unfortunately, these fees do not qualify for any tax benefits"

I have never deduct such expenses in the past.

[DianeW777]

Fees associated with the bank or financial institution are not deductible unless they are related to your business. Personal expenses charged for your foreign income are not deductible.

@zatakan 

@ssffnn 

[Refstars]

I'm using TT Online for 2023 taxes. I have about $1000 in foreign taxes paid from mutual funds and thus  TT created a Form 1116. Following all the prompts for tax credits, I eventually get to a screen "Excess Foreign Tax Credit." The amount TT put into the box on this screen for carryback to 2022 is a little lower that the $1000, but it happens to be the exact amount of foreign tax paid in 2022--that seems very odd. When I accept that amount on this screen, I'm taken back to the Tax Breaks menu, which tells me that I don't receive any of that credit for my 2023 taxes.

Since I can't see the actual 1116 worksheets, I have no idea how this result came about, how much of the $900+ is allocated to a carryback or carried forward, and whether I can use TT to figure out if I should send in an amended return for 2022. Any guidance here on what TT is doing?  Thanks!

[ssffnn]

Pull up all your tax forms by going to FORMS at the top of the TT dashboard. You'll see on the left column of the screen all your tax forms. Scroll down and you should be able to see both 1116 and (one) 1116 worksheet. I use the download version of TT premier; I suppose it's the same for the online version. TT factors in your income to come up with how much credit you are allowed to take in the current tax year and the remaining amount is carried forward. 

[Refstars]

Thanks for the reply, ssffnn. I'm using TT online, and I'm not able to see the forms without paying for this year's TT first. I'm hesitant to do so until I'm pretty sure that TT handles carryback and carryforward appropriately, because if it doesn't, I'll use a CPA--the instructions for Forms 1116 are too confusing for me!

So for your response or anyone else's, are you sure that TT correctly fills out the appropriate 1116? And since I had the foreign tax paid for 2022 taken as a credit easily without that form (I'm now retired, so work wages in 2022 were replaced by passive investments in 2023, so the passive foreign tax had plenty of non-passive income for 2022), I'm hoping TT will tell me if I can do the carryback calculation. Any other thoughts?

Again, thanks for your time and helpful suggestions.

[AmyC]

Form 1116 can calculate amounts and you can carryback one year -if you want to amend a prior year. Although, it sounds like your full amount has been taken since the amount matches what was used last year. You can carryforward  a credit up to 10 years. The program will carry it for you.

The form 1116 does have worksheets to show more information.

You can see Tax situations TurboTax does not handle if you are still concerned.

@Refstars