Foreign Tax Credit - H&R Block vs TurboTax

[medelste]

Hi everyone, I'm hoping you can advise directly, or point me to an early-retirement.org equivalent forum for tax questions.

This year I've run our numbers on both H&R Block (H&R) and TurboTax (TT) online tax software. (I know, but hey, I've got a lot of time these days!) Thanks to our lower income, I was able to use their respective free file methods from the IRS website and so was able to get to the point where they produce printable tax forms without paying either company anything.

We have some earned income, some domestic and foreign mutual funds' dividends and sales, we contributed to Traditional and Roth IRAs, we did a Roth conversion, we got a little QBI, we got a little retirement savings contribution credit, and we had a little health insurance marketplace premium tax credit repayment. So I thought it was a broad mix of things to test if the two software brands matched outputs.

H&R and TT matched in all areas except for in calculating our foreign tax credit.

1. TT added our deductible IRA contribution to line 3b of form 1116 while H&R did not add the IRA (or anything else) to that line.

2. TT used the value from 1040 line 11b on line 18 of form 1116, while H&R added back our qualified business income deduction to the value from 1040 line 11b, and put that total on line 18 of form 1116.


I tried my best to enter the same values on both H&R and TT and double-checked them repeatedly, but since they have different questionnaire, I might have made a mistake somewhere along the way and I'm at fault.

Do you think it's likely that I made a mistake in answering a question incorrectly? If not, do you have an opinion on which software was correct for each of the above decisions? I'm having trouble interpreting the form 1116 instructions when it comes to those two lines.

Thank you!

 

[Sunset]

My first thought is, how much was your foreign taxes paid, as the credit should equal that number if below a certain amount, so did both get it correct ?

Also, just off the top of my head, for 1) why would an IRA contribution have anything to do with foreign tax credit (unless simply reducing income for comparison) in which case did H&R end up with the same income for comparison ?

 

[LOL!]

If you got a foreign tax credit equal to the foreign taxes paid, then I would not worry about it.

But thank you for pointing out the difference. Those folks over at bogleheads.org love to answer Form 1116 questions, so you might ask over there if you are registered or maybe someone here can simply cut-and-paste your question over there?

 

[cathy63]

I'm going to assume you have enough foreign tax paid to need form 1116, since apparently both packages decided to fill it out. TTax will not generate it if you have less than $600 in foreign tax ($300 if single), so you must have more than that.

Line 3b is for deductions not related to specific types of income, so I think TTax is right to put the IRA deduction there. You'd be able to take that deduction if 100% of your income was foreign or if 100% was U.S, so it's not related to either type of income.

For line 18, there's a worksheet in the 1116 instructions that says to start with line 11b of your 1040. Then it has you add and multiply various portions of your worldwide gains and QDivs. Assuming all of those ended up as 0s for your case, you'd be left with line 11b. So I think TTax is correct on this as well.

edit: here's a thread from Bogleheads from last year: https://www.bogleheads.org/forum/viewtopic.php?t=247038

 

[medelste]

If you got a foreign tax credit equal to the foreign taxes paid, then I would not worry about it.

TT computes a foreign tax credit about $100 less than H&R Block, and so a federal refund about $100 less as a result.

But thank you for pointing out the difference. Those folks over at bogleheads.org love to answer Form 1116 questions, so you might ask over there if you are registered or maybe someone here can simply cut-and-paste your question over there?

I'm registered over there, thanks for the direction!

 

[medelste]

I'm going to assume you have enough foreign tax paid to need form 1116, since apparently both packages decided to fill it out. TTax will not generate it if you have less than $600 in foreign tax ($300 if single), so you must have more than that.

That's right, we paid $1,226 in foreign taxes on our international stock mutual funds.

Line 3b is for deductions not related to specific types of income, so I think TTax is right to put the IRA deduction there. You'd be able to take that deduction if 100% of your income was foreign or if 100% was U.S, so it's not related to either type of income.

We had a combination of foreign and U.S. income.

For line 18, there's a worksheet in the 1116 instructions that says to start with line 11b of your 1040. Then it has you add and multiply various portions of your worldwide gains and QDivs. Assuming all of those ended up as 0s for your case, you'd be left with line 11b. So I think TTax is correct on this as well.

Thank you, I see that now.

edit: here's a thread from Bogleheads from last year: https://www.bogleheads.org/forum/viewtopic.php?t=247038

Thanks, yes, that's pretty relevant thread to my question on 3b, I'll head over to Bogleheads.

 

[kaneohe]

Have you tried filling out the 1116 by hand and comparing w/ the 2 softwares to see where they are different?

 

[kaneohe]

...........................................
H&R and TT matched in all areas except for in calculating our foreign tax credit.

1. TT added our deductible IRA contribution to line 3b of form 1116 while H&R did not add the IRA (or anything else) to that line.

2. TT used the value from 1040 line 11b on line 18 of form 1116, while H&R added back our qualified business income deduction to the value from 1040 line 11b, and put that total on line 18 of form 1116.


......................................

guessing that TT is doing it correctly:
1) instructions for line 3b (1116) give an example for inputting alimony from Sch 1 (adjustments), TIRA deductions are in that same section of Sch 1.

2) 1116 instruction (on the form) for line 18 say to enter the value from 1040
line 11b which is taxable income and incorporates the QBI deduction in that number.

which gave you the higher credit? TT or HRB?