Foreign Income - Withhold Tax

[Varasri]

I have Some Income coming from India (Interest from Banks, Dividends, Profit on redemption of Mutual Fund Units, Profit on sale of Shares and Rental Income), I entered all my incomes (after converting to USD as per IRS website), now the question comes what about the Taxes to be paid on those Income in India, as the Tax year ends on 31st March, and taxes will be calculated around July & August. I have the details of  Withholding Tax (TDS in India), If i can show the Withholding tax where should i enter.

[LoganathanB]

You can enter the foreign taxes paid by you as follows

1. Enter all your foreign income.
2. Search for the foreign tax credit from within your return.
3. Select the Jump to link in the search results.
4. Answer Yes to Did you pay foreign taxes in 2021 or have credits to use from a prior year?
5. Follow the instructions and enter the information to get the credit or deduction.

We will attach Form 1116, Foreign Tax Credit if your situation requires it.

For more information on foreign tax credit click on the link

Foreign Tax Credit

[Varasri]

Hi Loganathan,

Thanks for the fast reply, i entered all the incomes, but my question is about TDS (Withhold tax) as it is not the final tax, can i enter it at foreign tax credit place.

Thanks 

[LoganathanB]

You should enter the foreign actual tax payable on your income. 

For more information click on the link below.

Foreign Tax Credit

[Varasri]

Hi Loganathan,

Actual tax on my Indian Income cannot be calculated till July/August or even late (extensions in pandemic situation), so you want me to calculate (approximate) or any other option.

Thanks

[LoganathanB]

You can check the box Accrued in form 1116 and enter the amount of taxes.

[Varasri]

Thanks Loganathan,

One final question, in your reply you said "enter the amount of taxes" means withhold tax (TDS) or calculate approximate tax.

Thanks

[LoganathanB]

Please calculate accrued tax on your income from India for the year 2021 and enter it in Form 1116.

[Varasri]

Hi Loganathan,

Finally Form 1116 is available, but i tried to enter the tax amounts on my foreign income, unable to do it myself.

Contacted one of your associate (CHAT), he tried for an hour, no luck. Second time i contacted another associate on phone, she worked around 2 hours but no progress, case #1489960461.

Please can you provide an associate who can help me in foreign income and tax credit.

Thanks

Srinivas

[DaveF1006]

Yes, let me provide you with a detailed step by step on how to report this. I am using the step by step mention rather than having you enter this on the forms.

1. First report all your income in the 1099 DIV section, 1099-INT section, investment income from the sales of stock, rental income in the rental income section of Turbo Tax, etc.
2. Even if you didn't receive a 1099 INT, 1099 DIV, Schedule B or any paperwork involving your rental house, still enter information in these sections anyway. 
3. In the 1099 INT and 1099 DIV sections, check the Box that says my Form has information in more than Box 1. In Box 6 of the 1099 INT is where you will report the foreign tax paid or accrued.  in the 1099 DIV, it is in Box 7.
4. Now since there was previous mentions about recording this on Form 1116, it sounds like you are using the software program. Correct me if I am wrong if this isn't the case.
5. Now let's work on the Foreign Tax Credit since you have already entered the income.
6. Go to wages and income>deductions and credits>estimates and other taxes paid>foreign taxes. You may have visited this section many time but here is where you should be. 
7. First screen will recognize that you entered information for the 1099 DIV and 1099 INT. Continue through until:
8. You reach a screen that asks if you wish to take a deduction or the credit. You may click on the link that will help you decide which is the better option for you.
9. Next will be a screen that will address your foreign interest reported on the 1099-INT and 1099 DIV.  We will handle the rental real estate and profit on the sales of shares later.
10. First question asks where you receive your interest income from. Select India.
11. Finish the section out. It will then ask you how much of the $xxxx.xx came from India. In this case you will report the entire amount if this is true. Continue through this part of the interview until done. The program may inform you you additional interest to report but ignore this if the only interest you are reporting is your foreign interest.
12. Do the same for the Dividend income, which will appear next.
13. During this process, the program will inform you you may have an AMT requirement because of your foreign interest and dividend reporting. Here you may select you wish to take the simplified limited election. Be cautious though, if you made an election in a previous year, here will be a screen asking you what election you made in a previous year. Once you make an election for simplified or other, you will required to use the same election to all later tax years.
14. Next screen will allow you to claim the simplified limited election calculation. If this is your first year in reporting foreign interest and dividends, it is recommended to take this election.
15. Next screen will ask if your foreign taxes was paid with interest and dividends only, say no.
16. Next the program informs you that you need to complete a foreign tax credit worksheet for the remaining income.
17. Next it asks what the income type is, indicate passive income.
18. Next asks Country summary. We will still stay in India if this is the case.
19. Here it asks for Gross income sources for India, here you will make entries for your Rental income, and the capital gains that you earned from the sales of your shares. Remember this is income you have already reported in the rental and investment sections.
20. Next screen is where you would report any expenses incurred including rental expenses or investment expenses. Do not enter your foreign accrued taxes.
21. Next will ask if you have foreign losses.  If so, you will record that amount here. 
22. Next question will ask if your total taxes paid is from 1099 INT or 1099 DIV.  Here you will say no. Then in the same screen is where you will indicate that $XXXX was foreign taxes on rents and royalties. Then you will report the tax that was levied on your sale of stock shares.
23. Finish out the rest of the section and if you have additional questions, please reach out to us. Make sure that you mark that these taxes are accrued if yo haven't paid them yet.
24. In case if you are unable to claim all your foreign taxes paid or accrued, there my be a foreign tax carryover. If there is, Form 1116, Schedule B will not be available until 03/31.
25. Again reach out if you have additional questions. Don't attempt to enter this information strictly on the forms unless you really savvy about taxes. If you have been trying to enter this on the form, delete the form and start over using the steps I have provided. 

[Varasri]

Hi Dave,

Following are my replies for some of your points:

4. Now since there was previous mentions about recording this on Form 1116, it sounds like you are using the software program. Correct me if I am wrong if this isn't the case. 

Ans. I am using Turbo Tax Live – Self Employed.

6. Go to wages and income>deductions and credits>estimates and other taxes paid>foreign taxes. You may have visited this section many time but here is where you should be. 

After this i am getting a screen saying " Congrats, you're getting a tax break" "$17" (which is the tax i entered while entering the dividend Income) (I saved the screen shot)

After i press Done button on it going to the page "Deductions & Credits" " Now it's time for the fun part" "Your tax breaks".

I don't know where I went wrong, I deleted and reentered Dividend and Interest Income couple of times, but no luck.

[RobertB4444]

@Varasri You haven't done anything wrong.  You are getting the $17 tax break.  For anything under $600 in 2021 the form 1116 is not required.  So as long as you entered the $17 on form 1099-DIV as @DaveF1006 instructed then you should be all set.