Foreign Tax Credit

[nicherbert]

I moved abroad in 2023 to the Netherlands and I am trying to properly report my foreign earned income.  I have completed this using the "statement provided from foreign employer" as the Netherlands doesn't provide any typical US form. I have gone through to convert the Euros to Dollars using the 2023 average rate. Since I moved late in 2023, I do not qualify for the Bona Fide Resident or Physical Presence Tests (I may have to amend my return next year).  However, when I get to the deductions, I should be able to take a Foreign Tax Credit (Form 1116), but TT is only picking up Foreign taxes paid from some of my 1099-DIV income.  How can I get TT to recognize the Foreign Income and properly give credit for taxes paid in the foreign country?

[rogge1722]

It is assumed that the foreign tax paid for earned income is greater than the foreign tax paid for dividends.  This will most likely  result in the foreign tax credit for earned income is greater than that for dividends.  So Copy1 will be for earned income and Copy 2 will be for dividends. 

By default, TT will want to process the dividends first, so we go thru the initial screens with minimal entries to get to the back section to process the earned income first.  To ensure a clean start, delete form 1116.

1. Foreign Tax Credit.
            Continue
   2. Tell us about your foreign taxes.
           This screen may or may not appear for various reasons.
          If displayed, click on Continue.
   3. Foreign Taxes
           Continue
   4. Do you want deduction or credit?
           Credit
   5. Reporting foreign taxes paid
          Continue.
   6. Where did you receive dividend income?
           Not used at this time, so just select the first one then Continue
   7. Income from foreign countries
          Done
   8. Need to report income
           No
   9. Simplified limitation election for AMT
           This screen may or may not appear for various reasons.
           If displayed, will assume YES is selected
   10. No other income or expenses
            No
   11. Completing forms 1116
             Continue
   12. Foreign tax credit worksheet
            Continue
   13. Choose the income type
            This starts the back section for earned income. Select  General category then Continue
   14. Country Summary
            Click on Add a Country.
   15. Select Country from the list.
   16. Other Gross Income-Country
             Enter the description and the amount even though entered elsewhere.
   17. Definitely related expenses
            Enter any applicable amount.
   18. Foreign Losses.
             Enter any applicable amount.
   19 Foreign taxes paid.
             Enter the amount in box for other income.
   20. Country Summary
            Done
   21. Continue thru the next several screens until you reach:
   22. Foreign Tax Credit Summary.
            You should see displayed Copy 1 General Category Income.
           Click Done.
   23. Go thru a few more screens and exit the interview.

Now re-enter the interview. Enter the data for the dividends and TT will generate  Copy 2, passive category , F1116. TT may ask for paid or accrued and the date paid. The default is “Paid” and the date 12/31/2023.

Lastly, verify that Copy 1 displays the greater amount of credit.

[MarilynG1]

In the Foreign Tax Credit section, you will need to enter both the amount and type of Foreign Income you received, and the amount of Foreign Tax you paid on that income.

Since 1099-Div's are entered in another section, that income info transfers into the section, but you will skip through those screens until you get to choose your type of income (General Category) and enter the amount. 

Continue and enter the Tax you paid.  There's a separate Form 1116 for each type of Foreign Income.

Here's more detailed info on Claiming the Foreign Tax Credit. 

@nicherbert 

[nicherbert]

This is exactly what I was looking for.  Somewhere along the way, I think I was answering the question wrong.  I was finally able to get it completed as I expected.  Thank you for the detailed answer.