Problem with Form 1116- Foreign Taxes

[DARichards]

Hello.

I am having a real problem with how TT is handling Form 1116.  I have a pretty vanilla situation-  I have 2 separate 1099-DIV's that are reporting foreign passive income with corresponding foreign taxes paid.  I am trying to take the credit for foreign taxes and not the deduction.  When I walk through the TT questions and enter the 10 different countries, the sequence of events doesn't allow me to enter the corresponding income and expenses for each country.  It's like the TT programming is wrong and it only allows me to enter one country per 1099-DIV, but one of my 1099-DIV's has like 10 different countries listed.  Is anyone else having this issue?

Thanks

[rogge1722]

TT can support only one country per 1099.  Here is a suggested workaround .

This is an example of the preparation to fill out a form 1116 for taxes paid by 3 countries within a 1099-DIV.

They are:

 a: RIC which includes all mutual funds/ETF”s

b: Canada

c: United Kingdom

Three fictitious 1099-DIV’s will be created.  The original 1099-DIV will be used for domestic income only.

Bring up a new blank 1099-DIV.  For convenience name the payer the same as the country it represents. In this case the payer is RIC.  From the broker’s supplemental info, insert into box 1a the ordinary dividends from any and all mutual funds/ETF’s.  In box 1b, insert all qualified dividends form all mutual funds/ETF’s.  In box 7, insert the foreign tax paid from all mutual funds/ETF’s.  That completes the 1st fictitious 1099-DIV.

Bring up a 2nd blank 1099-DIV.  Name the payer Canada.  In box 1a, insert all the ordinary dividends from Canada; in box 1b all the qualified dividends from Canada and in box 7 the tax paid to Canada. That completes the 2nd fictitious 1099-DIV.

Bring up a 3rd blank 1099-DIV.  Name the payer U.K. In box 1a, insert all the ordinary dividends from the U.K.; in box 1b all the qualified dividends from the U.K.  The U.K. does not withhold taxes, but TT must see an amount in box 7 during the interview.  Insert $1.00 into box 7 and subtract $1.00 from box 7 of either of the previous fictitious 1099’s.  That completes the 3rd fictitious 1099-DIV.

On the original 1099-DIV, subtract all the foreign amounts from box 1a so that only the domestic ordinary dividends remain. Subtract all foreign amounts from box 1b so that only the domestic qualified dividends remain. Delete the amount in box 7, the foreign tax paid.

If there are more than 3 countries, TT will automatically generate additional F1116 copies as necessary. 

[rogge1722]

Addendum:

When you get to the screen with the header "Report foreign tax paid to XXX", that screen will display up to 6 payers.  The remaining are on the following screen.

[DARichards]

Hey-  Thank you so much for the replies- I really appreciate it.  Unfortunately, I am using the online version of TT and I don't think I can do the steps you outline.  I'm unfortunately probably going to have to do some cobbled together TT forms with my own PDF fillable forms directly from the IRS.  Unfortunately I already paid for the TT Federal and State product.  The other issue is I already scanned in my 1099-DIV and I don't know how to delete them once I have done that.  UGH  I wish I understood TT better than I do.

[BillM223]

First, I just want to confirm that the 1099-DIVs are not from either mutual funds nor from regulated investment companies.  I assume that they are not, because the simple (1099-DIV from mutual funds or a regulated investment company) should work without extra entries.

Also, to delete the 1099-DIVs should be possible:

1. make sure that you have paper copies of the 1099-DIV(s) (because we are going to delete them and then you add them back by hand).

2. Do a Search for 1099-div (lower case) and click on the jump-to link. Ignore all the suggested search terms, just type 1099-div and hit enter.

3. Say Yes to having dividend income. 

4. The next screen should be a table of your already entered 1099-DIVs. Use the trash can icon or the Delete button to delete the 1099-DIVs that you wish to remove.

5. Then go back and add each 1099-DIV by hand.

Or did you want something else?

[DARichards]

Hey-  Thanks for the info.  The Two 1099's I have are both from brokerage companies and the income/foreign taxes are all from mutual funds/stocks/RIC's.  I think the prior answer about TT not being able to handle multiple countries on a single 1099 is correct.  I am going to revisit the issue again in a couple weeks and try to finalize my taxes then.  Thank you again for your suggestions- I will try it.

[DARichards]

Did this today and it worked GREAT-  THANK YOU!

[fred97]

I have a radical idea. Why doesn't TurboTax fix their software? It clear says in the software that you can use multiple countries, and when you try that it always overrides your previous entry.

[DARichards]

Agree 100%.  I finally got it to work by making a separate 1099-div for each country.  It was cumbersome but unnecessary if they had the correct programming.

[jnltaylor]

It's terrible that this is what has become of Turbotax.  I have not had a Form 1116 issue until this 2022 version.  As pointed out, for some reason, TT can now only handle one country per 1099-DIV financial institute, even if you have 5 different countries contributing to the Foreign Taxes.  Filling out a paper Form 1116 is significantly easier than how TT sets up the process. 

[jnltaylor]

Not your fault.  After using T for over 10 years, I've never before seen such a mess in how TT is handling foreign tax credits and competing a Form 1116

[DaveR5]

I've been using TurboTax for more than 15 years, albeit reluctantly, because despite its shortcomings and problems, it still usually works better than H&R Block's individual user product.  I usually buy the Premier edition on a disc.  At least this year, online electronic transfer of my data from various brokerage accounts worked flawlessly.  That has not been the case in some past years.

This year I had more difficulty than in the past in completing the forms needed to claim a credit for foreign taxes paid via brokerage accounts.  I had 3 different brokerage firms and in one of them two sub-accounts.

 I struggled for a couple of days trying to figure out how to properly complete the Worksheets and Forms 1116 to claim a credit for foreign income taxes paid, reading the gobbly-**bleep** from the official IRS instructions and several other sources including posts on the TurboTax forum, to little avail.  Then I found an Internet post by a man named Harry Sit who operates a website named "The Finance Buff" whose URL is thefinancebuff.com  as a single run-together term.

Mr. Sit had posted detailed instructions for claiming the federal income tax credit for foreign income taxes paid or accrued for people using H&R Block and for people using TurboTax.  Although his example is excellent, still wasn't complex enough to provide me what I needed for my situation.  Because I have my investments in 3 different brokerage companies and in one there are 2 sub-accounts that have foreign based investments some of which are individual companies and others of which are RICs, Harry's single RIC holding in a single account wasn't enough help for me.

But I eventually hit upon the idea of creating one Form 1116 for my RIC accounts, entering two different RIC accounts on the same Form 1116 even though they were at different brokerages.  I just had to keep the numbers entered for each of them correctly associated with the corresponding account, which I did.

Then I created an additional Form 1116 and a Worksheet for each of the two sub-accounts at the same brokerage since each had different countries involved, two different countries in each of the sub-accounts.  Of course, I had to manually add up the various numbers for the total dividends and for the qualified dividends for the companies in each country and manually enter them, after I downloaded the Supplemental Information PDF from the brokerage firm.   

I already had that information from the other brokers, one by mailed paper copy to me and the other via my initiating an online download.

In case future reference to that detailed data is needed, I saved a PDF copy of those 1099s from the brokerage firms and keep them in digital file form with my income tax returns.  I also have a print copy.

[jnltaylor]

I have a workable solution for TT 2022 and the Form 1116 to get Foreign Tax Credit if you have sources of more than one country for Foreign Tax Credit within one account  (e.g. Fidelity or Schwab). 

Since TT limits entry to one country per Investment Firm account, for country selection merely enter "Various"; and enter all of the foreign income (dividends) and all of the foreign tax credits into the same entry (the Various) ignoring anything you know about specific country of origin. 

If one day you're audited by the IRS, merely state the fact that Turbotax fails in this area, and this was the only means to enter all the combined data.  In the end, the current tax code only cares about the combined data totals.  The country of origin is not a tax effect issue.  It is merely an IRS information gatheirng issue attempted to be captured within the Form 1116.  

[AmyC]

That is a good solution and I would offer that you should be aware of the countries and verify the deduction is allowed. Form 1116, page 3, does state not all foreign tax paid is allowed. This includes:

Taxes imposed by and paid to certain foreign countries. These countries are those designated by the Secretary of State as countries that repeatedly provide support for acts of international terrorism, countries with which the United States doesn't have or doesn't conduct diplomatic relations, or countries whose governments aren't recognized by the United States and aren't otherwise eligible to purchase defense articles or services under the Arms Export Control Act. Pub. 514 contains a list of these countries.

[jnltaylor]

valid point on only applicable to eligible countries... based on tax treaties well above the Secretary of State office.  Although very unlikely circumstance for almost any US tax filer considering the use of Turbotax.

  Turbotax does excellent job of showing all eligible countries for Foreign tax credits in the drop down box.  Therefore by manner of process, if your concerned that your income is coming from a nation with caustic relationship with the USA, - note your countries of origin from your financial statement, check to see if you could have used that country selection within Turbotax in the dropdown box (which you would use if only a single country source for a particular financial account)...then move on.   

The reality is that again this goes back to a IRS audit and a specific question on Form 1116 toward the countries behind the "various".  Also every major Financial Institute (think Fidelity, Schwab and TD Ameritrade) won't reflect foreign taxes paid on non-eligible nations.  They have shown to me how they have their own tax filters...just case you're carrying a ADR for a stock in Iran or North Korea..