TT is calculating my Foreign Tax Credit to be $0

[pk]

@gmangesh , @BME , IMHO, you two have similar predicament but the cause and hence the path forward may be totally different.  I hope I am interpreting this correctly  ( without having the total picture :(

@gmangesh , your issue i.e. not being able to use the  FTC  is because  the FTC is a NON-Refundable credit and thus  can ONLY reduce  your total tax liability up to zero.  So in your case because your  tax liability was already zero, FTC benefits are nil and lost.  The only corrective action here is to  refuse the  "simple method" of FTC and force the use of  form 1116.  This will recognize the whole credit  -- dollar for dollar.  But because  the allowable would be zero ( no tax liability without regard to  FTC ) , the whole amount would be available for carry back or carry forward.  Hopefully then you can use it in another year.

@BME , in your case because  from 1116   creates a very small ( rounded to zero )  FTC and assuming that  your tax liability is not zero, you can use the simplified method and force the system  to use the safe harbor process.  If that is not beneficial to you then you can always  ( because you are using  windows desk top version ) you can go to forms mode and  include the total FTC   ( over-ride ) on the federal  carry-over worksheet.  This should not affect your current return and be eligible for e-file.   Just make sure that next year when you prepare  your return  that the federal information  worksheet shows the carry-over information.

I hope this  helps .   Is there more I can do for you ?

pk

[BME]

@pk Thank you very much for your help!  I saved a copy of my 2023 Ttax file just as a reference for my 2024 prep next year.  It has the Form 1116 Comp Wks and Form 1116 info that I added.  I also added via override the $65 in foreign taxes to the Carryover to 2024 section of Form 1116 Comp Wks.  (The Federal Carryover Worksheet doesn't include FTCs, at least in the one in my Ttax files doesn't.) 

This approach will at least help me remember to look at and consider the FTC carryforward in my 2024 prep, which will present a new environment for the FTC to be considered.  Maybe I will have to carry it forward again, or do some complicated limitation calculation, which will make the end result to be no FTC, but at least it won't be lost due to the apparent software bug.     

p.s.  I think my situation is like @gmangesh  's inasmuch as I also have a zero tax liability for 2023.  I see from IRS Pub 541, Foreign Tax Credit for Individuals, p. 18, that "If you make [the FTC safe harbor exemption election, such that no Form 1116 is needed], you cannot carry back or carry over any unused foreign tax to or from this tax year."  Thus, @gmangesh  you also may want to go the Form 1116 route.  

[gmangesh]

Hi @pk, thanks so much for your analysis. and thoughts.

@pk , @BME  - I have already filed my returns with the Safe Harbor election that TT chose for me - I did not override it and force the use of 1116. Which means I have now lost the chance to carry it forward and claim the FTC next year (unless I file an amendment, which is a hassle I will forego).

I would have expected TT to automatically fill out the necessary forms to carry it forward when it recognized that the FTC was being "lost" - or at least presented me with the option to either lose it or carry it forward. Am I expecting too much? Is there a way to report this behavior to TurboTax so perhaps they can improve TT's handling of this use case?

[pk · Accepted solution]

@gmangesh , @BME , I agree with you that TT could have done a better job, warning/ advising that  one  or the other path may be advisable ( but I suppose because of being  strict   only a preparation / transmittal service provider  there would be legal  exposure ) it does not  -- it leaves it up to the user of the product to try out different scenarios/ strategies to reduce  tax liability.

I don't what to say on this .

If tour query has been satisfied , please consider accepting the answer  ( so the  thread would close) and/or upvote ( since we volunteers  get satisfaction ONLY through these actions of the users ).

 Bahut Sukryia ji

pk

[BME]

@pk & @gmangesh 

Like @gmangesh, after putting quite a bit of thought into this issue with the Ttax software, my question is:  "Is there a way to report this behavior to TurboTax so perhaps they can improve TT's handling of this use case?"

The software shouldn't be:

> telling users things like, it "can't see the income" without explaining why, and instructing exactly where to enter whatever it can't see but needs to see, especially when the foreign taxes have been uploaded on a 1099-DIV; if more detail about the related foreign income is needed, why not just ask for it?; 

The software shouldn't be:

> steering users to the FTC safe harbor, then dropping the topic with no explanation of why or what to do when the safe harbor doesn't generate an FTC that can be utilized in the tax year.

The software shouldn't be:

> skipping the Form 1116 track entirely, such that users are left to override a bunch of erroneous "zeroes"  to even get the software to report the actual carryover amount. 

I don't think improving the software's FTC flow such that it generates correct carryover amounts in all cases is "offering tax advice."  I know I only came here for help because the program was asking for info it already had, and providing incorrect results.  I had no idea how to make it "see" what it said was missing.  To me, the flow should be:  Does the safe harbor apply, if yes, great.  If not, fine, go ahead with the key Form 1116 questions ... wouldn't take long to determine whether any of the FTC may be used in the tax year, and the rest should carry over.   

Everyone has to decide for themselves what to do, practically, but I do not plan to amend my 2023 return either, as there is no change in 2023 tax.  I also plan to add my FTC carryover as an override to my 2024 prep next year, with a brief supporting statement of how it arose and could not be used in 2023.  I think that is reasonable, and I'll keep a copy of this discussion in my file in case anyone might think it is not.

Also, I believe the safe harbor is there to allow the FTC in modest amounts in the current year, without a bunch of Form 1116 complexity, so long as the FTC can be used in that year.  I don't think it's supposed to deprive anyone of a carryover if it actually doesn't apply. 

Thank you both for an interesting and informative discussion!  

[pk]

@BME , @gmangesh ,  I will forward this thread to  the mods of the volunteer group so  the powers-be are aware of your thoughts.

I think I have  done all I can to help you.

pk

[CM47]

I had the same issue about a week ago, also with a MAC.     The  online chat help could not solve it after patiently spending a lot of time.  He suggested that I try the next day.  We did see the screen option for Turbo to calculate the most advantageous method for me, and to compare both, but it just kept giving 0 as a foreign tax credit.  I wonder if this is a bug in the software ?

I tried again, and another online chat person told me to fill in the itemised rather than standard deduction.  This worked, but  after printing all my forms (closing the ticket) and sending them to the IRS with the money  I realised that it did not print out the 1116 form to apply the foreign  tax the credit that I could carry forward..   My case is fairly simple as the tax treaty is only one way, I now have to amend my tax return.

I suggest reading the booklet on foreign tax credit and instructions for form 1116 several times to be prepared because the online chat people are not specialists in this, although very kind and patient.  It helps to manually complete the relevant forms to learn more about it, but I am a bit disappointed that I spent several hours on this for no reason.

[BME]

Hi @CM47  Welcome to the FTC Carryover Glitches Club. 

Seems you got your carryover to show up without overrides, good for you!   Not sure why using itemized deductions v. the standard deduction resolved the erroneous "zero FTC" errors for you, but interesting that it somehow did. 

So frustrating that, in selecting the forms to file with your return, the software omitted your Form 1116 & 1116 worksheet that shows the carryover.  Uggh.  Why is it that we notice that kind of thing AFTER hitting the proverbial send button?            

[mhyong]

Hi. I have a similar problem.  I have a value larger than the FTC  on line 16. TT tells me that I have recorded $X of FTC but when I finished all the steps and looked at the final form 1040, the FTC line 20 has no value.  Also given that all my FTC was paid on dividend income, form 1116 is not required.  So why does the FT that I paid not sure up as FTC?  How can I see if I picked deductions or credit for the FTC section?  I would like to make sure that I pick credit since it gives dollar for dollar deduction. 

[mhyong]

@pk i am hoping that you can give some advice as to how to get the FTC to show up in my form 1040.  I am using TT to check against my tax accountant to see how good TT is.  All the numbers match up +\-$5 except for the FTC.  My accountant has the full FTC deducted dollar for dollar on my 1040 while the final TT 1040 has my FTC at zero even though in the interview process it confirmed the correct total FTC number as my accountant.  TT just did not carry that FTC number into my 1040 resulting in no tax credit at all.  
I have a value larger than the FTC  on line 16. TT tells me that I have recorded $X of FTC but when I finished all the steps and looked at the final form 1040, the FTC line 20 has no value.  Also given that all my FTC was paid on dividend income, form 1116 is not required.  So why does the FT that I paid not sure up as FTC?  How can I see if I picked deductions or credit for the FTC section?  I would like to make sure that I pick credit since it gives dollar for dollar deduction. 

also I am using a desktop version of Deluxe 2023 on a Mac. 

[Mike9241]

an 1116 is required if yo are single and claiming a FTC of more than $300 or married and claiming a FTC of more than $600

if 1116 is not required on the 1099 for the FTC info just enter the FTC amount - no other info

[pk]

@mhyong , agreeing with comments by my colleague @Mike9241 , regarding the safe harbor amounts of FTC,  I want to make sure that 

(a) after entering all the  amount(s) from  form 1099-DIV including  the foreign taxes paid and country,  you confirmed that the 1099-div information is correctly entered . --- think there is summary sheet that tell you that

(b)  when all the  incomes have been entered, then  you selected the  Credit and Deductions tab.

(c) when you other deductions have been entered  and even if TurboTax has selected  the standard deduction, you still have to go down the list of  deductions/ credits till you get to select  " Foreign  Tax and credits.  Here is where  you have to make sure that you select  that you want credit   ---- this will  allow you to choose  credit / deduction  etc.    

As mentioned by  @Mike9241 , the safe harbor amount is US$300 per filer  ( thus US$600  for a joint  return).

Note that   ----  1.  Deduction of foreign taxes  is  on schedule-A  ( Itemized deduction  only ) under  State & Local Taxes  i.e. a total of US10,000.      2. Foreign tax credit is limited on form 1116  by a ratio of  foreign income  world income and thus while it recognizes  taxes paid dollar for dollar, the amount allowed is at most  a fraction  and  no more than the tax US has imposed  on the same  income --- double taxation mitigation.

Sometimes it is better  ( especially in cases where the total Foreign Taxes Paid  is  around the safe  harbor amount and you have significant US compared to Foreign income)  to reduce the claimed foreign  taxes amount to match the safe harbor amount -- your final tax liability would be more benign.

Does this help ?

pk

[mhyong]

How do I get TT to generate form 1116?  Since you mentioned that 1099div summary does not state the foreign income but only foreign tax paid, I will have to page through the details to get the total foreign income I received and go to “wages&otherincome” tab to key in these foreign income?

I have about $29,811 foreign dividend income and about $1532 of foreign tax paid.  So I will have to include form 1116.  So by inputting a separate foreign income in the “wage and other income” tab will trigger TT to generate form 1116 for me?  Sorry if my questions sound rudimentary.

[CM47]

I used Turbo with the "foreign earned income exclusion form 2555" for a few years and it worked well.  I was not paying foreign tax at that time.

I gave up on Turbo when I started to pay foreign income taxes because I knew more about the form 1116 than their online chat help.  Their program generated 0 and they proposed the itemised deduction method instead of FTC method using form 1116, which I found out was disadvantages to me after I paid them to generate my forms.

I redid the tax with H & R Block Expat online service (set up by country of residence for servicing different time zones) and their staff understood the form 1116 well, with very prompt service and support at a reasonable price.   They did a great job, I will stick with them.  

Good luck, I am unsubscribed to the chat as I will not be using Turbo anymore.

The two who I contacted on Turbo chat did not really understand the FTC and form 1116, although they were very polite and helpf

[pk]

@mhyong , the foreign income has already been entered as  total dividend from your  1099s.   The only part you will have to enter is the foreign earned income on form 1116.   

(a) if your itemized deduction  can handle  i.e.. can sustain the increase of  $1532  and the result is  higher than your standard deduction, then that path would be better.

(b) if not , then you need to go to  "Deductions and Credits" tab, select "I will choose....." and then from the  drop down list of deductions & credits, near the bottom, select  "Foreign Tax  credit" --- this will take you to the worksheet for form 1116 --- you can choose  deduction ( as mentioned above ) or credit -- you have make sure that the  Form 1116 gets  not only the foreign taxes paid  but also the foreign source income ( from your brokers' sheet details ).

Hope this helps .   Is there more help you need at this time ?

pk