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Jim6402
Level 2

Foreign tax credit troubles

I've been having trouble completing the foreign tax section of turbotax. I just have a few hundred dollars paid by mutual funds as well as a small carryover from last year. In the past most or all of this could be used as a credit. For some reason this year turbotax is showing only about a third of it can be used as a credit. Our overall tax situation is about the same or even less than in previous years. The final questions in the section started asking about the AMT and I had no idea what the correct answer was. I can't help but think I've either answered them wrong or entered some information incorrectly. 

 

The most frustrating thing about this is I then signed up for the "deluxe, premium service" thinking I would get some help. The sales pitch was your return would be reviewed line by line by a tax expert and checked for errors. I ended up talking on the phone with someone that was very nice but seemed to know even less than I did about the trouble I was having. Highly frustrated at the moment, trying to decide whether to stick it out with turbotax or dump the whole thing and look elsewhere!

3 Replies
MarilynG1
Expert Alumni

Foreign tax credit troubles

Sorry for your frustration.  

 

The easiest way to claim the Foreign Tax Credit is to enter the 1099-Div in the 1099-Div section and check the box that indicates 'I have more boxes on my form'

 

When the form opens, enter the amount of Foreign Tax paid.  From there, it automatically gets placed on Form 1116.

 

In the Foreign Tax Credit section, you are asked to confirm that you have no additional entries, other than the investment funds you already entered (screenshot). 

 

TurboTax then asks 'which country' you paid Foreign Tax to.  Choose 'RIC' for Regulated Investment Company, and that will be all you need to do.

 

The Foreign Tax Credit show on Schedule 3, Part I, Line 1. 

 

 

 

 

If AMT does not apply, leave it blank.  

 

 

 

 

 

 

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Jim6402
Level 2

Foreign tax credit troubles

Thanks for your reply! I had worked through most of that successfully the first time around. In reviewing my entries I got to the AMT question, I could change my answer but not clear the selection altogether, is there any way of doing that? I have always used the simplified method of figuring this credit in the past, so maybe that would be the best answer. 

I'm still a bit baffled by the amount allowed for the credit. In the past virtually all of the foreign taxes paid were allowed, where as this year only about a third were allowed. Our income situation has stayed about the same or less than last year. Was there a change to the IRS code dealing with these credits this year? Thanks again for your help!

KarenJ2
Expert Alumni

Foreign tax credit troubles

The IRS limits the amount of foreign tax you may claim as a credit. That limit is the total amount of U.S. tax you owe, multiplied by a fraction: your foreign taxable income divided by total taxable income. Thus, if you earn $50,000 from foreign sources, and $100,000 from all sources, your foreign tax credit limit is your U.S. tax multiplied by 1/2.

 

The carryover of foreign tax credit can only be used after you have utilized all of the current year foreign tax credit.

 

If you have used the simplified method for AMT ,then you should keep using it. Simplified Limitation Election 

 

According to the IRS:


You may elect to use a simplified section 904 limitation to figure your AMT FTC. If you do, when figuring your AMT FTC, you will use the same net foreign source income for AMT that

you used for regular tax. (The amount on line 17 of your AMT Form 1116 will be the same as the amount on line 17 of your regular tax Form 1116.) You must make the election for the first tax year after 1997 for which you claim an AMT FTC. If you don’t make the election for that year, you may not make it for a later year. Once made, the election applies to all later tax years and may be revoked only with IRS consent."  It is not the reason for your lower foreign tax credit.

 

Please don't hesitate to contact us if you have further questions.

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