Taxable income (foreign earned income and pension) from foreign sources, Line 1A, Form 1116 is inflated by amount in F2555. Any ideas?

[yulingdaiusa]

I claim foreign earned income tax credit from both HK & UK. TurboTax adds taxable income in F2555 to Line 1a, F1116, almost doubling my taxable income though tax credits come out correct. Need to adjust?  

[RalphH1]

You probably need to adjust it, and I’m curious about the result being correct. I don’t know the specifics of your scenario, but the credit is limited to the amount of your U.S. tax allocable to your non-excluded foreign income. So if we know something in the equation isn’t right, we definitely want to investigate.

I recommend going back to the beginning of the foreign entry process. If the income you’ve excluded was on a W-2 which was entered first, it’s possible to accidentally tell the program (in the 2555 interface) that it was on a statement, and enter it again (doubling the income number).

Later, in the Foreign Tax Credit section, the program should be referring to the already-excluded income, and asking you to confirm that it’s allocable to the countries you’re entering. And then there’s a “Other Gross Income – [Name of Country]” screen where there’s a possibility of making redundant entries of 2555 excluded income. 

Depending on your scenario, there are other possibilities as well. I know I’m not being very specific, yulingdaiusa, but this is sort of a hands-on project, and one that requires looking here and there. But you obviously understand which number we’re trying to fix, and hopefully I or someone else can help along the way if it isn’t going smoothly!

[rogge1722 · Accepted solution]

No adjustment is necessary.

If you bring up the f1116 worksheet, there will be entry in Part 1 (g)(1e) "From Form 2555 foreign earned income." That amount will be included in the f1116 line 1a.

From TT's on demand guidance:

Line 1e, columns A, B and C:

Total foreign earned income less any foreign earned income or foreign housing exclusion is transferred to line 1e of the indicated column if the General category is checked and there is an entry in the Income Excluded on Form 2555 Smart Worksheet above.

[yulingdaiusa]

Great answer! Trouble is, gross income from all sources smart worksheet in F1116 has an error msg, and needs to use differential from Part I, Line 1a total to make a big adjustment to clear the error msg, which in turns inflates substantially, reported taxable income on F1116 and F2555 again. BTW, I have no income from within US in 2022. How to get around the error msg?

[rogge1722]

I suggest reviewing the data source for that entry to locate any discrepancies.

From TT's on demand guidance.

Form 1116 (COPY 1) : Line 3ea

Calculated Gross income from all sources:

This is total income before deductions and is the sum of:

Form 1040, lines 1, 2b, 3b, 4b, 5b and 6b plus
Schedule 1 (Form 1040), line 1 plus
Schedule 1 (Form 1040), line 2a plus
Schedule C, line 7 (all copies) plus
All gains reported on Schedule D minus Schedule D, line 11, Subtotal Line A(Form 4797, Gain from Part I) plus
All gains reported on Form 4797 plus
Schedule E, line 3 total plus line 4 total plus
Schedule K-1 Worksheet - Estates and Trusts, Box 14 Code B : Foreign Tax Information section, line 7 (if it has a value); otherwise income reported in Part III lines 5, 6, 7 and 8 plus
Schedule K-3 - Partnerships Line B - Gross income from all sources
Schedule K-1 - Partnership Additional Information page 1, Box 11 section,Code A, line 1 (if positive) and line 3 and line 4 and Code I, line 5
Schedule K-3 - S Corporations Line B - Gross income from all sources
Schedule K-1 - S Corporation Additional Information page 1, Box 10 section, Code A, line 1 (if positive) and line 3 and line 4 and Code H, line 5
Schedule F, line 11 (all copies) plus
Form 4835, line 7 ( all copies) plus
Schedule 1 (Form 1040), line 7 plus
All positive income amounts on the Other Income Statement.