Incorrect foreign tax credit

[SS62]

I have no idea why TurboTax 2021 is unable to compute the foreign tax credit automatically even though all the 1099 forms containing the information were imported directly from the banks/brokerages. I had to enter the amounts manually so it could complete Form 1116 for Interest and Dividends.

So I went back to 2020 and 2019 returns to check if the info provided was correct.  I found that my 2020 return completely missed the foreign tax credit while my 2019 had an incorrect number for the credit in Schedule 3 (1116 was not filled).

These appear to be basic bugs. Am I doing something wrong or is this well-known?

Thanks!

[ThomasM125]

The IRS allows you to skip form 1116 Foreign Tax Credit if your foreign taxes, as reported on 1099 forms, are less than $300 (single filer) or $600 (married-joint.)

If you qualify, then the foreign tax credit will be placed directly on line 1 of schedule 3 and it will show as a tax credit on form 1040.

Otherwise, you have to use the Foreign Taxes menu option in the Estimates and Other Taxes Paid section of TurboTax to populate form 1116 and have the credit appear on your tax return. TurboTax will ask you about your foreign taxes when you go through the Deductions and Credits section.

[Mike9241]

i've been using TT for over 10 years. some years I needed the 1116 others I didn't. never had a problem with the FTC  

[SS62]

So you are saying we have to enter the values for populating Form 1116 manually? Why can't TT pull those values from the 1099 forms and populate them automatically? It seems to populate Schedule 3, Line 1 automatically if the tax is less than $600 for married joint.

[SS62]

The question is - were you just following the step-by-step flow or were you populating the appropriate values by navigating to the right screens because of your knowledge of Foreign Tax Credit?

I am not saying you cannot get it right if you know the rules and are able to navigate the workflow correctly. 

I am concerned TT's workflow is inadequate for those who are not familiar with all the rules for Foreign Tax Credit. For example, it does not have to provide the option of deducting foreign tax as an itemized deduction if standard deduction is already chosen. Plus it doesn't warn the user that Foreign tax has exceeded $600 - therefore the user MUST provide the values manually to populate Form 1116. Ideally it should automatically populate Form 1116 and ask the user to verify the values. That would help a novice user. Otherwise mistakes are bound to occur.

[SS62]

So you are saying we have to enter the values for populating Form 1116 manually? Why can't TT pull those values from the 1099 forms and populate them automatically? It seems to populate Schedule 3, Line 1 automatically if the tax is less than $600 for married joint.

[DaveF1006]

To clarify, are the total foreign taxes paid less than or more than $600, if married filing jointly?

@SS62

[SS62]

In my 2019 return, it was > $600 per the 1099s. But TT had somehow come up with a value ($444) < $600 and populated schedule 3, line 1. I am pretty sure I chose the option to enter the foreign taxes into 1040 instead of filling out 1116. But why did it give that option as the default?

Let me clarify my question. My taxes are pretty simple - I just to have import W-2s, 1099s, 1098s, etc. as input. So I simply import my docs and use TT step-by-step workflow to complete my taxes. I figure TT has all the info to pick the correct option to complete my return. Yet  I discovered that TT 2019 entered a smaller value in Schedule 3, line 1 than the actual foreign tax that could have been easily computed from the 1099s. How could this happen?

TT 2020 step-by-step defaults somehow ended up with foreign tax credit as 0. This is absurd - unless TT chose itemized deduction for foreign tax credit after advising me to take standard deduction (the correct choice). Could this happen?

TT 2021 forces you manually enter foreign tax info for completing Forms 1116. While this is better than incorrect computation of foreign tax credit, I would expect TT to compute it automatically and correctly at that.

This is  my issue - can I trust TT to complete a return correctly using the step-by-step workflow given that my tax situation is straightforward. After I discovered these errors, I have less confidence in TT. After all, one of the reasons I use it is to avoid studying instructions for every form in detail.

Hope my question is clear. If there is some explanation as to how these could have happened I would like to hear that.

[DaveF1006]

It depends. You may not have been able to take advantage of the full amount of the credit in 2019 and 2020. As a result, there may have been a carryforward of the credit in each of those years. Let me explain how the computation of the credit works.

Your foreign tax credit cannot be more than your total U.S. tax liability multiplied by a fraction. The numerator of the fraction is your taxable income from sources outside the United States. The denominator is your total taxable income from U.S. and foreign sources.

Whatever is not claimed in those years, you may have a foreign tax carryover, which means You can carry back for one year and then carry forward for 10 years the unused foreign tax.

Check to see if that was the case in 2019 & 2020.

Please read this IRS source document on how to figure the foreign tax credit.

@SS62