TT not calculating FTC correctly - simple calculation

[stephdegroot1]

It seems like TT is calculating my FTC about $3k less than what it should be. I used the IRS' pdf form to do the calculation myself and I'm getting a different answer. 

My calculation is simple (I think) because it's just foreign income (after the foreign income exclusion already claimed) divided by total taxable income and then multiplied by my US tax liability. I'm using all of the same figures as TT but TT gives me a lower number, and you can't see the calculation. 

Anyone know what I'm missing?

[rjs]

It's not that simple. I don't know what you mean by "the IRS' pdf form." Did you use the Foreign Earned Income Tax Worksheet on page 35 of the IRS Instructions for Form 1040, and the other worksheets that it directs you to? Be sure to read all the instructions, and follow them to the letter. Don't assume that you know how the calculation is done.

[stephdegroot1]

Sorry, agree that IRS pdf is not clear. I mean the Form 1116. I know what the FEI figures are but I’ll double check the calculation that you reference. 

[rjs]

I misunderstood your reference to "FTC." I thought you were talking about calculating your income tax on Form 1040 line 16. The Foreign Earned Income Tax Worksheet is not used to calculate the Foreign Tax Credit. If you think that the calculation on Form 1116 is incorrect, we can't tell you what you're missing based on just a vague statement that the credit is "about $3k less than what it should be." You have to say specifically what TurboTax calculates and what you think it should be, with specific line numbers and exact amounts.

[stephdegroot1]

Yeah, I understand what you're saying. I just don't think I want to share all of that info here. I only have foreign income (lived in Europe for half the year) and foreign taxes. No other adjustments. So was just wondering if I'm not considering something else that would impact the calc. I may just need to live with their answer, which results in us paying some federal tax but not a lot. 

[DaveF1006]

It depends. You can't claim the Foreign Income Exclusion and the Foreign Tax Credit at the same time unless your foreign income is over the exclusion threshold of $108,700. You can however claim a Foreign Tax Credit on any excess foreign income over $108,700. Have you considered this fact when you calculated your Foreign Tax Credit? 

@stephdegroot1

[stephdegroot1]

Yep @DaveF1006! We only lived abroad for the first half of the year and so TT is giving me an FIE for half the annual amount (approx $54k). I was calculating the FTC with the remainder of the income not excluded - and adjusting the taxes paid for excluded amounts as well. But maybe the partial year has an impact on the FTC as well.

[DaveF1006]

The Foreign Tax Credit calculation is tricky. This is how it is determined. 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. This would be the income that is in excess of your exclusion. The denominator is your total taxable income from U.S. and foreign sources.

When this ratio of foreign income to world income is applied, the actual credit may greatly reduced. Also, if you weren't able to claim the full Foreign Tax Credit this year, you can carry back for one year and then carry forward for 10 years the unused foreign tax. 

@stephdegroot1