Form 1116 Error TurboTax

[rhs3]

HELP . . .

IRS instructions explain how to elect to claim the foreign tax credit without filing Form 1116.

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

IRS instructs me 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 .

Form 1116 generates a much lower credit.

I have deleted 1116 several times .    Schedule 3 , line 1 is initially blank but when I enter try to enter a number , a new 1116 worksheet appears with the same wrong options .

rhs3

[JohnW152]

First, make sure you qualify for the credit without filing Form 1116. 

According to Election To Claim the Foreign Tax Credit Without Filing Form 1116 in the Instructions for Form 1116:

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).

The income must be passive, then, and the income and foreign taxes paid must have been reported on one of the qualified payee statements described above.

So, for example, if your foreign taxes paid were for interest on a Form 1099-INT, the foreign taxes paid would have to be reported on the 1099-INT, which you would input into TurboTax. 

Foreign tax paid is reflected in Box 8 of Form 1099-INT, and an entry there that's equal to or lower than the $300/$600 limit would generate an entry on line 1 of Schedule 3, without the need for Form 1116. 

[rhs3]

My total foreign tax is $272  .   It-is all reported on 1099=DIV ( Box 7 ) with the forms downloaded into

TurboTax from Vanguard and Schwab .    It is all passive income and I have no carryovers from previous years.

And I would expect this to automatically  generate an entry for Schedule 3 , line 1 of $272 without 1116.

For 2020 and 2021 TurboTax did exactly this with nearly identical amounts and sources of foreign tax.

This year TT takes me to a worksheet with only two options: Deduction or 1116.

I have deleted 1116 several times.  Schedule 3, line 1 is initially blank but when I try to enter a number,

a new 1116 worksheet appears with the same wrong options

[JohnW152]

This sounds like it should be generating on Schedule 3, line 1.

I know you've deleted Form 1116 several times; have you tried deleting the 1099-DIV and re-inputting it manually?  If not, try that.

You probably know how to do it by now, but here's the path:

1. If you don’t see 2022 TAXES in the left pane, select the dropdown to the right of Income & Expenses on the Hi, let’s keep working on your taxes! page and then select Let’s get started, Pick up where you left off, or Review/Edit. 
   • Otherwise, in the left pane, select Federal, then Wages & Income (This is labelled Income & Expenses in TurboTax Self-Employed)
2. Scroll down and select the Show more dropdown to the right of Investments & Savings 
3. Select  Start or Revisit to the right of Dividends on 1099-DIV
4. Select  Yes on the Did you receive any investment income? screen, then select Continue
   • If you see either the Your investments & savings or Here's your 1099-DIV info screen, select Add investments or Add another 1099-DIV as appropriate, then select Continue
5. On the next screen, select Enter a different way, and follow the instructions to enter your 1099-DIV

If this isn't helpful, please indicate whether you're using the Online, Desktop/CD or Mac TurboTax product.  Also indicate what version -- Deluxe, Premier, etc.

[rhs3]

Yes , I tried it before.  But I tried it one more time to document my steps.

The file tab has an entry to remove imported data.  I removed imported 1099-DIV from Schwab and Vanguard.

I checked that was no entry on Schedule 3 , line 1 .   Also on   the forms menu , that all 1116 forms and worksheets are gone .   Also that any remnants of the 1099-Div from Schwab and Vanguard are gone.

I then entered manually the data  from my paper copy of  Vanguard 1099-DIV including $86.58 foreign tax paid. At this point the forms menu had a message indicating that the 1099-DIV form was incomplete.  When I clicked on that form , a "Form1099-Div Worksheet" appeared , with only two choices :  Deduction or 1116 . When I complete the entries for 1116 .  Schedule 3 line 1 shows $12   not $87  .

I am using Desktop/CD ,  Deluxe  on a Windows10 machine.

rhs3

[AmyC]

Foreign tax can be taken as a credit or deduction and you are choosing the credit correctly. It sounds like you are entering the forms correctly with manual entry.

A credit under $300 ($600 MFJ) does not require the Form 1116 and you shouldn't be required to fill it in. 

Since you are using the desktop version:

1. select the Forms mode
2. locate sch 3 and select it
3. Look at Part I line 1, you should see your $12 listed there.
4. Right click on the number
5. Select data source
6. A window pops up showing the source of the number
7. Take a look through your forms, data source as needed and see where the error begins or a worksheet that explains the $12
8. A red exclamation mark indicates information is missing. You can locate the red box to see what is needed and correct it when you return to Forms mode.
9. You should also check your 1099-DIV in the forms that it is carrying correctly.
10. Once you have located the issue, you should be able to switch back to step-by-step and change any input necessary.

You don't want to make changes in the Forms mode as it will void the accuracy guarantee.