Form 1116

[juham2013]

Hi,

Is there a video that specifically provides a view of the interview process to fill out Form 1116 using TurboTax?  There are many, but they are for mailing in paper returns,  not using software such as TT. 

I tried to manually fill in form 1116 this morning by going to the "Forms" view,  but it really doesn't seem very straightforward.   All other data (W2 income, INT,DIV, and capital gains) has been plugged into the Desktop version of TT Home & Business already.  Filing Married Jointly.

Can I assume that I do NOT need modify or fill in 1040 Form and just focus on Form 1116 at this stage and TT takes care of the rest?

Cheers!

JJ 

[LindaS5247]

Yes, you can be confident that TurboTax will  ask you straightforward questions about your foreign income, determine how much of it is deductible (or available as a credit), and properly fill in all the right forms for you.

We don't have a TurboTax generated video for filling out Form 1116, but there are sites that share videos for users of TurboTax that could be helpful.

If you are using TurboTax Live, you can easily connect with a tax expert: You can do this by selecting Live help button. Select Connect with live help at the top of the chat window. Enter your tax question or tax topic area and select Continue.

Click here for "Claiming the Foreign Tax Credit with Form 1116"

Click here for "Where do I enter the foreign tax credit (Form 1116) or deduction?"

[juham2013]

With regard to filling out Form 1116,

1. Enter all your foreign income in the Wages & Income section if you haven't already

The above made me hit a brick-wall.  Entering foreign income and then going into 1116 actually increased my tax liability here in the U.S.  and it clearly needs to be opposite, given the significant taxes I paid.

The problem is really where to properly enter the foreign income.  I have spoken with 3 TT Tax Advisors already.

[juham2013]

Also, the links mentions Americans living abroad.  I don't and the income is passive income, based on employment history in that foreign income.

[juham2013]

It also says (TurboTax site you linked)

There are also some taxes that cannot be included in the FTC:

• Social Security taxes paid or accrued to a foreign country with which the U.S. has a Social Security agreement  (this is my case)

So, I can't use Form 1116 to report taxes paid and if that is true, why would I report income from a foreign country?  If I do - without getting a tax credit - I would pay DOUBLE tax.

[ThomasM125]

If your only foreign taxes are social security taxes that don't qualify for a foreign tax credit, then you don't need to bother with the Form 1116 or foreign taxes. 

When you work through the foreign tax section, you assign your foreign income to whatever country it is from and you enter the foreign tax paid to that country. Doing so does not add that income to your taxable income. If you need to add foreign income that is not already reported on your tax return, you do that in the Wages and Income section, then Less Common Income, then Foreign Earned Income and Exclusion. You will see a screen there where you enter your Foreign Earned Wages, I believed you may have made an entry there in error:

[juham2013]

Hi ThomasM125!

I appreciate your response.

By "If your only foreign taxes are social security taxes that don't qualify for a foreign tax credit...." are you saying that those Taxes do NOT qualify for FTC?

I know that based on the Bi-lateral Tax Treaty between my country of birth and the U.S., the only taxing authority on that social security income from that foreign country is that government. 

Where it says "Foreign Earned Wages" doesn't seem right as I did not earn any foreign wages but passive income in the form of social security payments.

I also looked at Form 8833 (not supported by TT). "Treaty-Based Return Position Disclosure"

https://www.irs.gov/pub/irs-pdf/f8833.pdf

Positions (Page 3) for which reporting is waived include, but are not limited to, the
following. See Regulations section 301.6114-1(c) for other waivers from
reporting.
• That a treaty reduces or modifies the
taxation of income derived by an
individual from dependent personal
services, pensions, annuities, social
security, and other public pensions, as
well as income derived by artists,
athletes, students, trainees, or teachers;
• That a Social Security Totalization
Agreement or Diplomatic or Consular
Agreement reduces or modifies the
income of a taxpayer;
..........

The above would apply in my case and would seem to suggest what you are saying would work.

Cheers,

JJ

[juham2013]

When I was talking to a TT Tax expert on the phone this morning she suggested I try the "Foreign Earned Income and Exclusion: section.  Result was that my Federal Taxes went up dramatically.

The 2nd screen after choosing that option produced the one below.  None of those boxes appear to apply in my case, getting social security benefits.

[ThomasM125]

I was referring to your comment that foreign taxes associated with social security benefits were not be eligible for the foreign tax credit if there was a treaty:

 

I haven't research the matter, but from what you posted, it appears that the foreign tax credit would not apply to you, and if so you don't need to enter anything regarding it on your tax return. I imagine this has to do with the treaty that gives you a benefit, so you don't get an additional benefit in the form of a tax credit.

[juham2013]

Hi,

Thank you so much for putting up with my "rambling" verbiage!

SusanY1 commented on my, yet, other post to the effect that my foreign pension would not go on Form 1040, but I could still use FTC (1116 Form) to report the income that way and also taxes paid......

Sincerely,

JJ

[SusanY1]

JJ, you DO put the pension on 1040 and then again enter it on the 1116.  Let us know as you work through those sections if you need help.  Because foreign income can be any kind of income, there isn't a clear way to "link" it to the 1116 except when it is on dividends.  

Therefore, you do enter it wherever it normally goes (either 1099-R area or Miscellaneous for you) which will put it on 1040.  Then again on the 1116 to tell the program the income amount that is tied to your credit (and when you enter it this second time it won't go on the 1040 a second time)

.  

[juham2013]

Good morning SusanY1,

Under which sub-category does the foreign pension go under "Miscellaneous"?   There are many alternatives there.

The interview process brings up 1099 again or W2 when I selected the 1st category and those are not applicable.  The sub-category that says "Other reportable income" also asks questions and presents alternatives that are not applicable in my situation.

JJ

JJ

[juham2013]

SusanY1,

A TT webpage also says the following (see below).   

Link to URL page here: https://turbotax.intuit.com/tax-tips/military/filing-irs-form-1116-to-claim-the-foreign-tax-credit/L...

I may have the semantics wrong as I paid taxes on Social Security income, so those taxes CAN be included in the TFC.

Still, I haven't had success entering the income as interview process asks questions that aren't relevant.

JJ

[juham2013]

Never had to use the "Forms view" before but would the foreign earned social security (pension) be entered at 5a and then put 0 in the Taxable amount field?   The IRS can't tax this income as by tax-treaty.   If my thinking is correct, I assume that I will then claim FTC on Form 1116 so that I am not getting taxed by the IRS on income I paid a heavy tax already.

[DaveF1006]

It depends. If a tax treaty specifies that your Social Security benefits are only taxable by your foreign country of residence, you generally don't owe US taxes on those benefits. However, you are still required to report the income on your US tax return.  

Even if the income is exempt from U.S. taxation under a treaty, the IRS requires you to disclose it on your tax return. You can then claim the treaty exemption to avoid double taxation.

Here is how to report and then exempt under the treaty exemption. 

1. Log into your account
2. Select Wages and income
3. Less Common income
4. Miscellaneous Income, 1099-A, 1099>start
5. Scroll to the bottom of the page to Other Reportable Income
6. Other taxable income, answer yes
7. Then give a brief description of the income and the amount listed. Here call this Social Security benefit from XXXX (the name of the country) and the amount
8. After this entry is made, select add  Add Miscellaneous Income Item . 
9. Here, type Treaty Based Social Security income Exclusion as a description. Enter the amount entered above as a negative number with a minus sign in front of the amount.

Leave this out of Form 1116 as you won't be claiming a foreign tax credit since it won't be taxable US income.

@juham2013