Foreign tax credit

[clu1945]

I have foreign tax paid of less than $600 from mutual funds each year and have used them as credit in the past years. Turbo Tax never generated form 1116, I think due to the fact that it is lower than the threshold for married couple file jointly. Is that correct? I think the amount was imported via 1099-DIV so everything was done automatically.

However, I cannot figure out why it didn't work this year. I imported 1099-DIV, but the $582 of the foreign tax paid never showed up on my schedule 3. Is it due to our low income this year? The final tax amount is 0, so the credit cannot be applied to?

If so, how do I carry forward the credit to next year? What do I need to do in this return to prepare for the future when I can apply it as credit next year?

Any pointer/advice is greatly appreciated.

Cindy

[DawnC]

Yes, the credit is nonrefundable, so if you already owe no tax, there is nothing to apply the credit to.  If your credit is larger than your U.S. tax obligation, you can use the leftover amount to reduce your taxes in the future.    To generate the carryover, go through the Foreign Tax Credit interview.    That link gives instructions.

But check your tax return, the carryover credit may already be calculated.   It looks like you are using the desktop product, so click on Forms in the upper right-hand corner and scroll down to Form 1116.   There should be Form 1116, Schedule B, and 1116 Computation Wks also.   You should see the carryover amount on both of those.  

[clu1945]

Thank you so much for the great info and help. 

I'll start from beginning. I imported 1099-DIV from two brokers, one with $451 Foreign Tax paid and the other with $131.

(How do you do screenshot here? It wouldn't paste... so I'm describing my steps in words)

At the Foreign Taxes interview:

1) I checked the first two checkboxes indicating I have no more foreign taxes to enter... and no foreign tax credit carryovers from earlier years...

2) The next screen told me I can take the foreign tax credit and three paragraphs of instructions. I clicked Continue.

3) It asked if I want a deduction or credit. It went back to the main page of Deductions and Credits when I clicked "Take Credit".

So I went through again, but this time I didn't check the checkboxes at step 1 above. It asked me to enter the foreign income from the 1099-DIV. I entered both, but somehow only one of them appeared in 1116 Comp Wks just as your screen shot but with amount $451, rather than $582. The other $131 is not present.

And I don't have Sch B Form 116.

Hope this is not confusing. I'll include screenshot if you can share how to paste it here. 

Thank you so much for your help.

Cindy

[clu1945]

I tried again by unchecking both checkboxes of "no more foreign taxes to enter..." and "no foreign tax credit carryovers from earlier years..." and reported the income for each broker. It seems like a loop but I managed to report both income again. Now $582 appeared in 1116 Comp Wks, but still doesn't have Schedule B Form 1116.

Is it a bug that I have to uncheck the checkboxes described above? I would think that I have no more foreign taxes to enter since it is imported via 1099-DIV. And I checked last year's version that I did check both boxes and didn't need to manually report the income.

How can I have the missing form appear? 🙂

Thank you.

[rogge1722]

If the exemption cannot be used in whole or in part, by default it will be lost.  The workaround is to elect not to use the exemption.  Here is the technique.

Go thru the foreign tax credit interview.  Then open the Federal Information Worksheet .  Scroll down to Part 6. The fifth paragraph is labeled  “Foreign Tax Credit (Form 1116).  Checkmark the box to file form 1116.

 Then bring up the foreign tax credit comp. worksheet. Scroll down to the bottom to the carryover section and you should see the credit carried over to 2022.

[clu1945]

By clicking the checkbox, all the forms I didn't see appear now. 

I don't recall that I have to do that last year though. Wish TurboTax make it easier for us.

Thank you all who have helped me on this issue.

Cindy

[clu1945]

I thought I am done, but turbotax asked me to check this entry:

Form 1116 (COPY 1)

It displayed an "Explanation Statement"

Form/Line: Form 1116(COPY1), 3, A

Explanation of : Other Deduction Statement A

What should I include for this?

Hope this provides sufficient information. This is new after I successfully forward the foreign tax credit to next year.

Any pointer is greatly appreciated.

Cindy

[BillM223]

Cindy, let's try this: a way to enter your 1099-DIVs, get your FTC, and not have to enter Forms mode. Oh, and not have an issue in the Review.

This is a very simplified process, but it should be close to what you need. It involves:

1. Entering your 1099-DIVs 1099-INTs and any other source of foreign taxes.

2. Going to the Foreign tax interview (Deductions & Credits->Estimates and Other Taxes Paid->Foreign Taxes).

I will break this answer up into a series of answers because the graphics are sizable.

First, enter your 1099-DIVs

Company A 1099-DIV

Company B 1099-DIV

FTC Intro

Tell us about your foreign taxes

foreign taxes

Deduction or Credit?

 where did the dividends come from?

 ***The Learn More above notes that RIC is used for mutual funds and for other regulated investment companies. See the Note above.***

 Reporting foreign taxes paid

Because the amount of tax assessed was more than 582, all of the FTC was used in 2022.

[BillM223]

Sorry, Cindy, I am unable to add all the graphics I want to add...maybe in the morning...

[rogge1722]

In Forms Mode, bring up the form 1116 and see if there is an amount in line 3b (other deductions). if it is blank then on the statement type in "not applicable".

[clu1945]

I hope I found the right place: It says "Pro data share of other deductions". It is blank.

Thank you very much!

Cindy

[BillM223]

Cindy, I have found that I am unable to show you all the screenshots I wanted to, so here is a verbal description of the process. Remember, we are going to enter the forms (like 1099-DIV) in their appropriate place in TurboTax, then we will switch to Deductions & Credits to enter the information for the 1116 - but this time using the Step by Step interview, not Forms mode.

In the simple case, this will work out for you, although you should read each screen carefully to make sure that there isn't something that applies to you.

rogge1772, does this look right to you?

1. Enter the 1099-DIV(s) as usual. Be sure to expand the screen so that the additional boxes appear (foreign taxes appear in box 7). Also enter any other forms that show foreign taxes, like 1099-INT, 1099-Combo, et.
2. Clicking on Done will bring you back to the Summary screen for Income. Now go to Deductions & Credits->Estimates and Other Taxes Paid->Foreign Taxes and click Start (or Update). Note that unlike in Online, the Cd/download product requires that you complete a 1116 in order to get the actual credit.
3. The first screen is just an intro; click on Continue.
4. The next screen is Tell Us Your Foreign Taxes. Click the first box if you have finished entering all the forms with foreign tax on them. Click on the second box if this applies to you (in the simple case, it probably won’t). If you clicked on the first box, you won’t click on the third box, and I don’t think you want to do this section if you haven’t entered all forms with foreign tax on them. Hit Continue.
5. The next screen warns you that you need a separate 1116 for each category of income. This should not be a problem in the simple case (foreign taxes on 1099-DIV, etc). Hit Continue.
6. The next screen asks if you want to treat the foreign tax as an itemized deduction or credit. We (and likely most taxpayers in the simple case) want foreign taxes as a credit). Hit Take A Credit.
7. The next screen asks where the foreign tax is from. Normally, this would be referring to country, but in the case of mutual funds or other “other regulated investment companies”, it is sufficient to list them as RIC. See the Learn More for more information. So, chose RIC in the first row, and hit Continue.
8. On the next screen, check off each form that applies to “RIC” (i.e., mutual funds and regulated investment companies in our simple case). Hit Continue.
9. The next screen is Reporting Foreign Taxes Paid with a short explanation. Hit Continue.
10. The next screen is Foreign Dividends and Tax. This has explanations about how you can find foreign income related to this foreign tax which will be asked later as well the fact that foreign tax from certain countries cannot be taken as a credit (very unlikely with a mutual fund). Hit Continue.
11. Foreign-Source Income – next you will see a series of screens (one for each form you entered) asking for the foreign income associated with the foreign tax. The Learn More in TurboTax suggests that the paperwork with the 1099-DIV may indicate the amount of income from foreign countries (and which ones).
12. No Other Income or Expenses – in the simple case, all of the listed items will apply, so you hit Yes to continue.
13. Foreign Taxes Paid – this screen is probably correct as filled in by TurboTax; however, you may want to check the documents with your 1099-DIC, 1099-INT, etc. to make sure that the taxes are paid, not accrued.
14. Carryovers or Carrybacks – In the simple case, you probably don’t have or want either. Hit No unless you have a need to hit Yes.
15. Foreign Taxes – this screen will report the amount of foreign taxes that will be applied as a credit on your return. In the simple case, this number should be the sum of what you entered.
16. Hit Continue and then go check 1040 Schedule 3, line 1 for your FTC. You will note in the CD/download product in Forms mode that there is no form 1116, although there may be a 1116 Comp Worksheet to hold all your answers until TurboTax was finished with them. No 1116 will print with your return in the simple case, which is consistent with the IRS instructions on page 2 for form 1116.

Note: this is where the $300/$600 limit comes from.

@rogge1722 

@clu1945 

[clu1945]

Thank you all to help me through the foreign tax questions last year. Although the issue was resolved for 2022 tax return, foreign tax credit still bug me this year. :(

Background:

1. I have $583 foreign tax credit carry over to this year.

2. I have $353 foreign tax paid in 2023.

I answered the step by step questions regarding foreign tax paid, and the amount $936 appears in schedule 3. So I thought everything regarding the foreign tax was done correctly. However, TT gave me an error at the end, pointing to form 1116 again.

I thought I won't need form 1116 since we are filing as married, joint and our foreign tax paid is less than $600. The error occurred at the screen where it asks the following question:

"Any foreign source qualified dividends or long term capital gains?"

How will we know how much of the qualified dividend is from the foreign country "RIC"? 

Any amount I entered here will increase the tax I owe. So I'm totally confused. 

As of now TT will not let me e-file with this outstanding issue. Any pointer is greatly appreciated.

Cindy

[clu1945]

Additional findings:

I reviewed 2021 tax return where I have claimed foreign tax credit of $519. The step by step process was easy and didn't ask me about the income from these foreign source.

The Foreign Tax Credit Computation worksheet is mostly blank in 2021 and the box to make adjustments for foreign qualified dividends and/or capital gains for line 1 is not checked in 2021, but checked in 2023. How can I uncheck the checkbox in 2023 tax return?

Thank you.

Cindy

[rogge1722]

For Tax Year 2023, are you using the cd/download version or the on-line version?