Can't file form 1116, do I file a 8802/6166 instead?

[tagu-gma]

Hello. I'm hoping someone could help on how I should report my foreign income that's been taxed already.

I am a green card holding Japanese that lived the US all of 2022. I co-wrote a book for a Japanese company to sell in Japan, have royalties on it, and was taxed in Japan. I thought I could claim Foreign Tax Credit through f1116, but it only lets me enter foreign dividend income. If I am understanding correctly, I'm not able to as I don't have a residence in Japan?

The publisher made an offhand comment that I should file form 8802. If I understand correctly, if I file this I would get a Form 6166, then provide that to the company in Japan so income is not taxed over there? This is something I would do outside of turbotax?

[RobertB4444 · Accepted solution]

You shouldn't file form 8802 if you are already a resident.  That isn't necessary.

Enter the royalty income as royalties.  That is in the wages and income section under Rental Income and Royalties.  You'll enter that income here because as a US resident you are taxed on any income that you earn anywhere in the world just as though you had earned it in the US.  Follow the prompts and enter in the royalty income.  You can also enter any direct expenses that you had against the income that you earned from writing.

Now that the income is entered you can enter the foreign taxes paid.  Convert them to US dollars using the exchange rate on the date that you paid them.  Then go to the deductions and Credits section and scroll down to Foreign Taxes which is under Estimates and Other Taxes paid.  

When you click on that there's a bunch of stuff so follow along - 

First, Tell the system Yes you paid foreign taxes and then Yes you entered all of your foreign income already.

On the next, tick the box that says you have no foreign tax credits from earlier years.  Then click continue.

Then, for foreign taxes click continue and on the next page 'take a credit' and then continue again three more times.

Then check the box for 'passive income'.  Royalties are inherently passive even though you worked on the book. Then click continue.

On the next page 'add a country'.  In your case, Japan.  Continue and then on the next screen the description is 'Royalty Income' and the amount that you entered earlier in the Royalty section.

On the next screen are the related expenses.  If you had any of these you already entered them as well but you're entering them here, too.  

The next screen is foreign losses.  Just leave it blank and hit continue.

Tick the box that says "I have foreign taxes paid on rental, royalty or other income".  Then enter the amount of taxes that you paid in the first box and the date that you paid them into the box at the bottom.

Then click done.  On the next screen none of your income is foreign dividends or capital gains so click continue.  The page after has 'paid' already ticked for you so click continue.  You're going to click continue through the next five screens since they don't apply to you and then the residency screen is already pre-filled with USA so you can click continue again.

You can click continue past the next several screens until it asks if you're done entering your foreign taxes and credits.  Click yes and you really are done with that.  The system will add the 1116 and the schedule E to your return.

@tagu-gma 

[tagu-gma]

Thanks so much, Robert. That worked!