Foreign Tax Credit (Form 1116)

[aptiva4tt17]

If one 1099's shows Foreign Taxes Paid to 4 foreign countries, how do I fill out Form 1116.

And if I have two 1099s that paid foreign taxes to the same foreign country, how do I fill out Form 1116?

Thanks in advance.

[MelindaS1 · Accepted solution]

In order to populate the specific-country data for income and taxes paid, you may need to create entries for additional dummy 1099-DIV's that only include data of foreign income and foreign tax per each country (so that your U.S.-source income is not double-counted or quadruple-counted), until all 4 countries have been entered. This is a common workaround across many tax software vendors. You might want to reference this Community conversation as a starting point.  

For the 2 1099's with foreign taxes paid to the same country, enter them both as usual, and TurboTax should collate them together on Form 1116 correctly. Tag me @MelindaS1 if you have issues with the final computation. 

Learn more:

TurboTax FAQ - Where do I enter the foreign tax credit (Form 1116) or deduction?

IRS Pub. 514 - Foreign Tax Credit for Individuals

[aptiva4tt17]

Thanks for the link to last yr's postings.  It is what I needed.

I have a follow-up question.  I think there is a simple way and a complex way to claim the Foreign Tax Credit.  Does TT handle both options?  If yes, how do I get to the complex way?

P.S.  How do I "Tag me @MelindaS1 if you have issues with the final computation. " ?  When I click on @MelindaS1, it leads me to a web page with all your postings.

[MelindaS1]

If my understanding is correct, and you're referring to the 'Election to Claim the Foreign Tax Credit Without Filing Form 1116' (see: IRS instructions) as the simplified method, then you would follow the navigation steps below to instead populate Form 1116:

TurboTax FAQ - Where do I enter the foreign tax credit (Form 1116) or deduction?

1. Enter all your foreign income in the Wages & Income section if you haven't already
2. Navigate to the foreign tax credit section:

• TurboTax Online/Mobile: Go to the foreign tax credit screen under Deductions & Credits
• TurboTax Desktop: Search for foreign tax credit and select the Jump to link or,
  • Go to Federal Taxes.
  • If asked, How do you want to enter your deductions and credits?, select I'll choose what I work on.
  • Under Estimates and Other Taxes Paid, select Start or Update next to Foreign Taxes.

        3. When you reach the screen Do You Want the Deduction or the Credit? select the option you prefer for your situation

        4. If you select Take a Credit:

• Select Continue on the next screen, then select No to fill out Form 1116.

The instructions indicate that the software will then use your inputs to determine if filing Form 1116 is required; you can check Forms mode in the upper-right on TurboTax Desktop to verify that Form 1116 is attached to your federal return (left-hand window). 

See also: TurboTax - Claiming the Foreign Tax Credit with Form 1116

Glad the Community link was of help! And don't worry, you're doing the tagging thing correctly. 

[aptiva4tt17]

What I meant is that I saw a Trust return with Foreign Tax Credits; and they have a schedule/attachment that shows adjustment to the gross Foreign Dividends from the 1099 -- and the numbers on Form 1116, Line 1a is smaller then the 1099 numbers on Line 3d.  The attachment shows adjustment factors that reduces the number to be reported on Line 1a.

And when I review all the worksheets on my 2024 tax return, I noticed that there is a "Smart Worksheets from Form 1040:  Individual".  It is about Foreign Qualified Dividends and/or Capital Gains Adjustment Smart Worksheet.  On this Smart Worksheets, there is a check box "Check the box to make adjustments for foreign qualified dividends and/or capital gains for line 1.  That box is not checked.  If I check that box, will TT provide instructions the steps involved in making adjustments -- Does it have the adjustment factors?

When I did my 2024 tax return, I don't recall getting that option to check that box.  So what is the procedure to get to that Check box?

Thanks in advance.

[DaveF1006 · Accepted solution]

It depends. The IRS requires this adjustment to make sure taxpayers don’t get a “double benefit.” Since Qualified Dividends are taxed at lower rates (0%, 15%, or 20%) instead of regular income rates (which can be as high as 37%), you need to reduce the foreign income reported on Form 1116, Line 1a.

You must make this adjustment unless you meet the "Adjustment Exception." You meet the exception (and don't need to adjust) if:

• Your total foreign qualified dividends and capital gains are less than $20,000. 
• AND you fall below certain taxable income thresholds ($191,950 for Single / $383,900 for MFJ in 2025).

If you are below those amounts, TurboTax leaves the box unchecked because the adjustment usually reduces your credit (by lowering the numerator in the credit limit fraction). I would not recommend checking the box unless your foreign qualified dividends are over $20K and your taxable income are over ‌the threshold amounts I have just listed above. 

If it is necessary for you to make the adjustments, follow these instructions, depending on which version of TurboTax you are using.

In TurboTax Desktop (CD/Download):

1. Switch to Forms Mode (click the "Forms" icon in the top right).
2. In the left-hand list of forms, find and click on Form 1116 Wks (the Foreign Tax Credit Worksheet).
3. Scroll down to the Smart Worksheet section located just above Part I.
4. You can manually check the box here. Once checked, TurboTax will use the IRS factors (e.g., 0.4054 for the 15% rate or 0.5405 for the 20% rate) to recalculate Line 1a. 

If using TurboTax Online.

1. Go to Federal > Deductions & Credits > Estimates and Other Taxes Paid > Foreign Tax Credit.
2. When you reach the screen titled "Any Foreign Source Qualified Dividends or LT Cap Gains?", you must select Yes.
3. TurboTax will then ask you for the specific amount of qualified dividends for each country. If your income exceeds the IRS thresholds mentioned above, it will apply the factors automatically behind the scenes.

In both versions, the adjustment factors are performed in the program so you don't need to manually record these in your return. 

Again, let me emphasize, do not check the box if you meet the adjustment exemptions I mentioned earlier. If you do, you will receive a smaller foreign tax credit and that shouldn't be your goal.

@aptiva4tt17