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tax software to handle foreign tax credit correctly?
Old 04-30-2012, 02:19 PM   #1
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tax software to handle foreign tax credit correctly?

I've used TaxCut from H&RBlock to prepare my taxes for several years. This year for the first time, I paid over $300 in foreign taxes due to my holdings in Euro and Pacific funds/ETFs. I entered the foreign tax payments (as part of the 1099-DIV info) into TaxCut, but Taxcut put "0" for my foreign tax credit (on 1040 line 47) and didn't notify me that anything was missing or amiss. I only noticed it when looking over my return later (unfortunately, a few weeks after filing).

I guess I'll file an amended return, but I'm finding now that I have to manually enter amounts into Form 1116 and it's more confusing than the other tax forms I've been used to (for example schedules C, D). TaxCut provides little guidance and doesn't automatically fill in any fields on Form 1116.

Some of you must be in the same boat - how do you handle Form 1116? Does anyone have experience with how the other commercial tax software packages (Turbotax, etc) handle it?
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Old 04-30-2012, 02:31 PM   #2
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TurboTax fills out form 1116. TaxCut used to, at least up to '07 or '08. They must have dropped support.
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Old 04-30-2012, 04:48 PM   #3
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Form 1116 is easy to fill out. First you have to say yes to the passive income question, then a series of questions like taxes legally owed, distributed by mutual funds, yes something about the countries , yes, amount of foreign tax paid, key in the total etc... I think once you answer the passive income question, and make sure you answer everything, it takes 2 minutes.
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Old 04-30-2012, 04:55 PM   #4
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OK I see your problem, you paid more than $300. in foreign taxes and $300 is the limit for the passive income credit which does not require filling out the long form 1116.
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Old 04-30-2012, 05:42 PM   #5
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I use TurboTax. I paid a 4-figure amount in foreign taxes and am getting all of it as a ForeignTaxCredit which is really all I care about.

I also read the Form 1116, the instructions, and the publication on Foreign Tax Credit, so I think I am in the clear even though I do not understand all the various nuances of this.

I cannot vouch if TT did this correctly or not, but the IRS has not come back to me in all the years of doing this. They still have time to do so.
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Old 05-01-2012, 04:16 PM   #6
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Thanks, I will consider switching to Turbotax next year. Meanwhile, guess I'll get familiar with Form 1116. Maybe it won't be so bad manually once I've gone through it a couple times!
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Old 05-01-2012, 04:17 PM   #7
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Quote:
Originally Posted by rothlev View Post
OK I see your problem, you paid more than $300. in foreign taxes and $300 is the limit for the passive income credit which does not require filling out the long form 1116.
Yep, that's the issue. In previous years when I paid less than $300, TaxCut handled it just fine.
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