1099 Div Error Flag - Foreign tax Paid issue

[wpbelson]

This is my first year with TT (Premier 2024 version).   I have created my return and entered all information and see that I have an error flag on my 1099-DIV worksheet when I go to the FORMS.   It is related to how to handle "Foreign tax paid" - Box 7 on Form 1099-Div Worksheet. For 2024 I have about $1,500 in Foreign taxes paid and there are 4 options to select from:

a. Deduct FT on Schedule A

b. Double Click to link to a copy of Form 1116

c. For Form 1116, select which column A, B, C

d. Total foreign source income.

I am transitioning from years of CPA prepared returns (thru 2023) to TT Premier in 2024.   My previous returns done by a CPA has had Form 1116 Foreign Tax Credit  and Carryover Reconcilation table with data from the previous 10 years (They also provided the corresponding Form 1116 AMT)

I am not sure which option I am suppose to select from the list above, but option a: for Schedule A seems to be incorrect.   I assume that I should pick either option B or C, but am not sure if I update on the Form(s) or I am suppose to work through some section of the Step-By-Step process.   I have Form 1116 and the CarryOver Summary data from my 2023 CPA return, I just need to know how to proceed in TT.   I have been limited on how much FT credit on Schedule 3 I can take each year due to the Form 1116 calculations, but assume that I need to continue with the carryover table for 2024 and future years in TT.  Any help on the best way to proceed in TT would be great.

Also, since my CPA has provided AMT in the past do I need to go through the AMT stuff in TT?   Why did TT not provide that calculation automatically or is there some threshold that needs to be met?

[baldietax]

I can't answer all this but generally I've found Form 1116 is a pain and you have to go into Forms mode between Form 1116 and the 1099-DIV and clean up the country allocation and the linkage between the forms and some missing info on 1116 worksheets.

Sounds like you want to do the credit on Form 1116 which needs (b) thru (d) in your list.  

TT will set up a Form 1116 ("copy 1") but you have to tell it what country(ies) the Form relates to in which column, and then link the 1099-DIV to that form 1116 copy and that column for that country, and provide the related foreign source income for that country/column.  It never all flows automatically for me and I've gotten used to jumping around to fix it up - but start with anything in EasyStep then go to the 1099-DIV form to fill in (b) thru (d) in your list, then go to Form 1116 to clean up anything missing, usually highlighted.

If it's a mutual fund across lots of countries you'd probably be using Various.  I am not sure the guidance on country breakdown vs. Various and whether it makes a material difference.  I've only have a couple of countries from equities and seem to get the same outcome either way.  You'd probably just follow what your CPA did before if it's the same type of situation each year.

There is also a checkbox you need to click whether the taxes were accrued or paid, you'll see red "!" mark next to the Form 1116 worksheet etc that need to be cleared (and fill in the country again).

You'll probably also need to plug in your carryover info somehow.

Not a CPA/Expert and not a complete answer but hopefully others who are will chime in, meanwhile this gives you the gist of what to do in TT.

[DaveF1006]

It depends. ‌Sounds like you are trying to do this the hard way and are working on forms. ‌I suggest an easier approach because you may not be able to efile if the forms aren't filled out correctly. First, completely undo what you have done and let's start over.‌ Here is how to approach this step-by-step.

1. Open up your Turbo Tax Software
2. Go to Federal Taxes>Interest and Dividends>Dividends on 1099 DIV
3. When you record your 1099 DIV, make sure you check the box., My Form has info in other boxes.
4. Record the information on the DIV and be sure to record the foreign tax-paid amount in Box 7.
5. Continue to a screen that says "Tell Us About your foreign Dividends". Here is where you would record your foreign dividends received in which country they were received from. This information is disclosed in a disclosure statement that came with your 1099 DIV statement.
6. Now most of the heavy lifting is done. You can now claim your foreign tax credit on Form 1116.

To claim the foreign tax credit.

1. Go to Federal
2. Deductions and credits 
3. Estimate and other taxes paid 
4. Foreign Tax Credit>start or revisit

As you begin working in the section, the program will recognize you have already made an entry regarding foreign taxes in your 1099 DIV. 

1. It will first ask you to verify where the dividend income came from.
2. Next screen you will select report income in the radio button
3. In the next screen, put a checkmark in the box that says select 
4. The next screen will verify the amount of foreign-source income the foreign tax was derived from.
5. After this is done, you are done reporting foreign income. If it asks you if you wish to review your entries, you can say no.
6. Next it'll ask you making a simplified election for AMT.  if you made this in previous years, you  check the box. Usually if your only income has been passive in previous years, you may have made this selection. You may need to look at last year's return to verify this.
7. Keep navigating the screens. When a screen appears telling you to choose an income type, choose passive income.
8. Press done in the next screen.
9. Press Continue through the next screens that appear until you reach Foreign Tax Credit Carryovers. Here is where you will report Carryovers from previous years.
10. Next screen will ask if adjustments need to be made.  Select no if you aren't aware of any adjustments.
11. Next will be a screen that shows AMT carryovers. If you have had AMT carryovers from years before, this is where you will record this information.
12. Continue through the screens until you are done.

[wpbelson]

Hi DaveF1006,

Thank you for all the detailed information on the Foreign Tax credit.  So far I have ONLY looked at the forms, but have not updated anything on them.   I used the SW capability to transfer my 1099s from my brokerage accounts.  Your bullet #6 below about Simplified election for AMT had me worried.   I started by looking at last year's return done by a CPA, but could not see anything that told me whether they had selected Simplified or Not.   I then went through all my returns to see when this carryover started.   I had to go all the way back to my 1996 return.  Since starting in 1996, my returns look the same and have 2 different 1116 Forms  (Regular and AMT versions).  They seem similar, but not identical for each year.  The 1116 forms are for option c (Passive category income from 1996 until current.  I also have 2 carryover reconciliation tables in my returns (Regular and AMT).  My income sources have been as follows during this timeframe:

1996 - 2011:  W-2 + Sch. C + Passive income (mostly US but a small amount of foreign investments)

2011 - 2016:  W-2 + Sch. C + Passive income (mostly US but a small amount of foreign investments) + Sch. E

2017 - 2022:  Sch. C + Passive income (mostly US but a small amount of foreign investments) + Sch. E 

2023:  Sch. C + Passive income (mostly US but a small amount of foreign investments) - Sold Sch. E rental at EOY 2022.

2024:  Passive income (mostly US but a small amount of foreign investments)  - Stopped Sch. C business at the EOY 2023.

2025 and beyond - Passive income (mostly US but a small amount of foreign investments)  + Possible W2 income.

I Googled to see about Simplified Election.  One of the responses stated that if your return has 2 different 1116 (Reg and AMT) like my returns and 2 reconciliation tables that the original selection was NOT Simplified election.  I am assuming that my CPA made that selection based on my multiple income sources way back in 1996.   I am not sure where I would look and what to look for to tell me about which option was selected, but if you have any further information to where and what I should look for on the 1996 (or other year return) that would tell me the answer that would be great.

Thanks again!!

[DaveF1006]

It sounds like you're doing a thorough review of your tax history—kudos for that! Based on what you've said, it seems likely that your CPA didn't use the Simplified Election for AMT. This is because there are two different Form 1116s (Regular and AMT) and the reconciliation tables in your returns. Here's how you may confirm this:

1. Review Form 1116 Instructions: Look at the instructions for Form 1116 for the relevant tax years. The Simplified Election for AMT would give the same foreign tax credit calculation for both regular and AMT purposes. This means only one Form 1116 would be needed. If you see two separate forms, it's a strong indicator that the Simplified Election was not made.
2. Check for Election Statements: The Simplified Election for AMT must be explicitly made in the first year it is applicable. Look for an election statement or checkbox on your 1996 return (or the first year you claimed the AMT Foreign Tax Credit). This might be in the form of a written statement attached to the return or a specific checkbox on the form.

@wpbelson