Problem with the software

[LJN123]

I have been using Turbotax for around 30 years.  I think I have found a problem with the 2024 software.  I clicked on "send file to tax agent" and received a token number.  Now how do I get help?  It didn't give me the opportunity to explain what I think is wrong.  Thanks

[LeticiaF1]

Before we can help you, you would have to let us know what issue you are having. ‌If you already generated a token, you can post your Token number here.

[LJN123]

My token is 145330069-55055787.  I have been using TurboTax for around 30 years - starting using it when it was still a DOS program.  For the past several years, my husband's 1099 has shown foreign taxes paid and we have been able to claim a foreign tax credit for the full amount.  This year, for the very first time, the program did not allow us to take the entire credit, so I started digging down into the Form 1116.  I found that the program on Part I, line 1a shows an amount of gross income from the foreign country of $3,092.  If I try to drill down it says this amount comes from the 1099s.  I do not believe this is true.  I reviewed his 1099 many times and this number does not appear anywhere.  There are just two amounts related to the foreign income - first, $5,721 of qualified dividends and secondly, the foreign taxes paid of $1,509.  The program also lists other deductions (line 3b) which I have no idea where this number is coming from.  I believe the program is wrong in disallowing any of the foreign tax credit.  I'm not sure if I sent the correct version of the return to you.  The foreign tax credit doesn't get partially disallowed until I run Smart Check.  Two errors come up and the second one forces me to enter the qualified dividends of $5,721 and then the foreign tax credit gets partially disallowed. (Also, the first error doesn't make any sense either).  Thanks for your help!!

[LJN123]

My token is 145330069-55055787.  I have been using TurboTax for around 30 years - starting using it when it was still a DOS program.  For the past several years, my husband's 1099 has shown foreign taxes paid and we have been able to claim a foreign tax credit for the full amount.  This year, for the very first time, the program did not allow us to take the entire credit, so I started digging down into the Form 1116.  I found that the program on Part I, line 1a shows an amount of gross income from the foreign country of $3,092.  If I try to drill down it says this amount comes from the 1099s.  I do not believe this is true.  I reviewed his 1099 many times and this number does not appear anywhere.  There are just two amounts related to the foreign income - first, $5,721 of qualified dividends and secondly, the foreign taxes paid of $1,509.  The program also lists other deductions (line 3b) which I have no idea where this number is coming from.  I believe the program is wrong in disallowing any of the foreign tax credit.  I'm not sure if I sent the correct version of the return to you.  The foreign tax credit doesn't get partially disallowed until I run Smart Check.  Two errors come up and the second one forces me to enter the qualified dividends of $5,721 and then the foreign tax credit gets partially disallowed. (Also, the first error doesn't make any sense either).  Thanks for your help!!

[SusanY1 · Accepted solution]

Thank you for providing the token so that we could check on this for you. 

You are seeing the $3,092 because there is a reduction required for the dividends when they are qualified dividends (subject to long-term capital gains tax treatment).  This is why you are seeing the change right after you confirm the amount of the foreign dividends that were qualified dividends in the Smart Check. 

If you are using the desktop TurboTax application, you can see this number by going to forms mode and looking for the "1116 Comp Wks".  On this worksheet you'll see the full 5,721 listed on line "h" and then you'll see the adjustment for "QD/LTCG" (which is Qualified Dividends/Long Term Capital Gain).  After the adjustment, the remaining amount is the 3,092.  This number is then used in the credit calculation.  

You will find more information about the adjustment in the instructions for Form 1116.  

The other deductions (Line 3b) number are deductions from your gross income (not the foreign income) that aren't related to the foreign income.  Those figure into the final formula for how the credit is calculated.  Those come from above-the-line deductions shown on Schedule 1, Lines 15 and 16.  In your case those are deductions for one-half of the self-employment tax and contributions to self-employed pension plans.  

If you review Schedule 1 and add those lines together you'll see the same number you're seeing on line 3b.  

[LJN123]

Thank you Susan!  That was very helpful!  Now I completely understand what happened.  I would like to make two suggestions that would have made this process go much smoother and would possibly allowed me to figure out on my own and not bother you.  First,  I was not able to drill down (by double clicking) on either the $3,092 on the Form 1116 line 1a or on the $3,689 line 3b.  If I had been able to double click on them and get taken to the original source (1116 comp wks and Schedule 1), then I would have been able to figure it out easily by myself along with the Form 1116 instructions.  Instead, I got frustrated and started looking for a way to get an answer from Turbotax.  Secondly, when I clicked on "Online" and then on "Send Tax File to Agent", it would have been tremendously helpful, if that immediately gave me the opportunity to explain my problem and connect with someone like yourself.  It was completely by chance that I came across this forum to reach out for help.  The two really should be connected.  Thanks again for your assistance and your quick response!!

[LJN123]

Susan, I have finished both our federal and state returns and I have just one last issue.  We have interest from treasury obligations which, of course, are taxable for federal but not for state purposes. 

On the federal schedule B, there are 3 amounts related to US treasury obligations.  First there is $10,022 (included in the Schwab total of $17,189.) In addition, there are two more amounts on the Schedule B related to US treasury obligations (one for $2,601 and $3,924).  In reviewing the state return, the $10,022 is correctly deducted on the Schedule CA line 2 column B, but the other two amounts are not.  Shouldn't they be deducted as well?  They are interest on U.S. treasury obligations also.  Thanks for your help!

[SusanY1 · Accepted solution]

For the $2,601 and $3,924 I see these entered as "accrued market discount", which isn't subject to the same treatment as direct treasury obligations, which is why it isn't being excluded on the state return.   Only the interest paid directly from government obligations is considered to be exempt from state taxes (as it is not part of the actual coupon payment). 

I tried to find a nice source to link for you here on that topic (which is often somewhat debated in internet chats) but there weren't any that I could easily share here specific to California's treatment of accrued market discount.  California addresses it, though, in code Title 18, section 24271(e) if you want to do some digging on your own.  

It is also addressed in federal code HERE.  Of course, the federal code doesn't speak to California/state rules but it does tell us that it's treated as "ordinary income", and not as interest income.  This affects how most states tax government interest. The exception to taxing government interest is very limited. It applies to the interest paid directly by the government (whether this is the US not taxing state interest or the state not taxing US interest).   

I hope that helps explain it so that you are now confident to file your return. However, if you have additional questions it's no bother at all for us to answer them - and I will try to keep an eye on this thread just in case!

Thank you, also, for the feedback on functions that would make completing your tax return easier for you.  


 

[LJN123]

Thanks again Susan!  I very much appreciate your assistance.  After I sent the message regarding the 2nd issue, I realized that you might need me to send the latest version of the tax return in order to see the completed state return since it was not yet completed when the first message/return was sent.  So I resent the return and got a new token number, so you have probably noticed that I asked the same question in a second message stream.  Please ignore the second message stream....and again, thank YOU!