TurboTax: Foreign Tax Credit, Form 1116 Schedule B mess

[BarbWire]

(I am using TurboTax Deluxe PC Download)

Form 1116 (Foreign Tax Credit) was finally released today. TurboTax supports it for e-file. However, if you have a Foreign Tax Credit carry-over from previous years you must also file Form 1116 Schedule B which will not be released until 3/31, and is not supported for e-file. Therefore -- per Intuit -- if you want to use a Foreign Tax Credit Carry-over, you must wait until 3/31 for the form and then mail in your return.

I paid $932 in Foreign (VEU) in 2021 and have a carry-over of $411 from 2020 available. TTax automatically populates/utilizes the carry-over and then informs me I need Form1116 Schedule B and cannot e-file.

From the Intuit complaint forum, it appears that the ONLINE version offers the option of deciding not to use your carry-over this year – and presto! 1116-Schedule B is not needed and the return can be e-filed. (one hopes the carry-over will be available for future years)

The PC version does not have the “don’t use my carry-over” checkbox. However, if I go into the 1116 Worksheet and override the $411 carry-over with $0, then – presto! 1116-Schedule B is not needed and the return can be e-filed.

I am quite willing to forgo the $411 carry-over credit this year in order to e-file now rather than waiting until after 3/31, printing/mailing my return, and sending it to the IRS morass. I have a $7,000 refund due.

But having never over-ridden a value in 20+ years of using TurboTax, I’m a bit nervous: will manually overriding the carry-over to $0 in the worksheet cause flags at the IRS? If I do this, the government is ahead by $411…

Is anyone else in this pickle?

 

[Midpack]

I am in exactly the same pickle, I have FTC and AMT carryovers for 2018 thru 2020, and presumably will again in 2021. There's a lot of confusion as you can finally eFile as of 3/3 if you don't have carryovers, but you can't until 3/31 if you do. I read on the Intuit community & Bogleheads that several people got around it by changing the FTC credit to a deduction, and then back to a credit so I tried that today - and voila, Smart Check said good to file!

However, I noticed I didn't have a foreign tax credit on my 1040 (despite paying $1039 in FT) and the form 1116 disappeared from TT. I walked through the entire Foreign Tax deduction section and my 1116 re-appeared still wrong AND all my prior year FTC and AMT carryovers were lost to TT!!! So I to hand re-enter those from my 2020 docs.

And I am back to square one. TT refuses to complete the form 1116/sch B, I can't file, and TT has not calculated a 2021 FTC...

There are lots of irate TT users as you've probably noticed, writing to the Intuit CEO etc.

So I guess we're stuck waiting until 3/31 potentially. And if that doesn't work I guess I will have to slog through all the various Sch B and Form 1116 instructions and do it manually - which is more than a little disappointing after paying for TT Deluxe. TT has always handled FTC and AMT in the past. If I can't figure it out (entirely possible), I may forego the credit too - unless I find out I'll never recover my 2021 or 2018-2020 carryovers.

I AM BY NO MEANS AN EXPERT AT ANY OF THIS, I WOULDN'T USE TURBOTAX IF I WAS...AND I RESENT HAVING TO LEARN THE ABOVE, I PAY FOR TURBOTAX SO I DON’T NEED TO…

 

[marcuscato]

I am in exactly the same pickle, I have FTC and AMT carryovers for 2018 thru 2020, and presumably will again in 2021. There's a lot of confusion as you can finally eFile as of 3/3 if you don't have carryovers, but you can't until 3/31 if you do. I read on the Intuit community & Bogleheads that several people got around it by changing the FTC credit to a deduction, and then back to a credit so I tried that today - and voila, Smart Check said good to file!

However, I noticed I didn't have a foreign tax credit on my 1040 (despite paying $1039 in FT) and the form 1116 disappeared from TT. I walked through the entire Foreign Tax deduction section and my 1116 re-appeared still wrong AND all my prior year FTC and AMT carryovers were lost to TT!!! So I to hand re-enter those from my 2020 docs.

And I am back to square one. TT refuses to complete the form 1116/sch B, I can't file, and TT has not calculated a 2021 FTC...

There are lots of irate TT users as you've probably noticed, writing to the Intuit CEO etc.

So I guess we're stuck waiting until 3/31 potentially. And if that doesn't work I guess I will have to slog through all the various Sch B and Form 1116 instructions and do it manually - which is more than a little disappointing after paying for TT Deluxe. TT has always handled FTC and AMT in the past. If I can't figure it out (entirely possible), I may forego the credit too - unless I find out I'll never recover my 2021 or 2018-2020 carryovers.

I AM BY NO MEANS AN EXPERT AT ANY OF THIS, I WOULDN'T USE TURBOTAX IF I WAS...AND I RESENT HAVING TO LEARN THE ABOVE, I PAY FOR TURBOTAX SO I DON’T NEED TO…

The "Office of President" from TurboTax called me and let me know that even though *officially* the Form 1116 Schedule B is available for print-only (not e-filing) on Mar 31st, they are working to get everything implemented and make the form AND e-filing available by Mar 16th (no guarantees of course). So, here are the options:


1) DANG IT APPROACH: Use itemized deduction for the foreign tax credit (don't worry this will not convert your entire return from standardized to itemized). Con - this will lower your refund (only related to foreign taxes) given the itemized deduction lowers the income, not the tax directly like taking the foreign tax credit does.


2) I AM FEELING EXPERIMENTAL APPROACH: Use foreign tax credit, but in the Form 1116 Worksheet, zero-out the excess carryover to next year. Your refund for this year will be higher compared to approach (1) but you will lose the excess carryover for next year (not entirely sure if there are other repercussions for subsequent filing). Also, I haven't tried the method to know if the Form 1116 is generated correctly w/ the override in the worksheet or if there are potential issues w/ e-filing in the final steps or the IRS simply rejects the return or flags it for audit (even though you are actually leaving money on the table for IRS), or other issues.


3) PATIENCE APPROACH: Wait until Mar 16th if you can. Con: Mar 16th deadline may not be met and you will get more frustrated and will be closer to the April tax deadline (especially if you do not want to forgo foreign tax credit or yield to postal mailing, and need to switch to a different software/CPA etc). Also, you will be the "beta-tester" of this newly implemented feature on a complex foreign tax form; may or may not increase your reject/audit risk w/ IRS if it is buggy.


4) MONK-LEVEL PATIENCE APPROACH: Use the software as it stands today, fill the form 1116 Schedule B manually and mail it in.


5) EXTEND YOUR TAX SEASON FOREVVVVAAA APPROACH: Do (1) for now then amend the return much later in the year when TurboTax has the 1116 Form Sch B ready for e-filing. Not sure if the amendment process will run into the glitch, given the changes are significant.

 

[audreyh1]

Thanks for the head up and discussion of options.

This is the first year we have an FTC carryover from prior year.

Hopefully they can get it all squared away by Mar 16, because I really do not want to send in a paper return!

 

[Midpack]

Thanks for the head up ne discussion of options.

This is the first year we have an FTC carryover from prior year.

Hopefully they can get it all squared away by Mar 16, because I really do not want to send in a paper return!

+1. I sent a “Thanks” to the poster as well. I’m really surprised at Intuit here…but I’ll be patient since my refund is $5…will be a little more with FTC.

 

[explanade]

What is the maximum FTC that you can use?

So anything over it would be carried over to future years?

But presumably if you've been using TT every year, it would automatically carry over excess FTC?

 

[marcuscato]

+1. I sent a “Thanks” to the poster as well. I’m really surprised at Intuit here…but I’ll be patient since my refund is $5…will be a little more with FTC.

One thing to note is that even though form 1116 has been around for a while, the form 1116 schedule B is new (if I am correct it was released by IRS in Dec 2021). So TurboTax simply has had no time to update their software to accommodate this. Given foreign tax code is super complex, coding this in, testing it, and releasing it to millions of users takes time, so I don't really blame them. Having said that, from what I am reading on the forums (not my own experience), some other software have made this available (like olt.com). Not sure though. IRS should not have released new forms end of the year, especially given it is so backlogged, and covid slows down TurboTax as well.

 

[BarbWire]

I am in exactly the same pickle, I have FTC and AMT carryovers for 2018 thru 2020, and presumably will again in 2021. There's a lot of confusion as you can finally eFile as of 3/3 if you don't have carryovers, but you can't until 3/31 if you do. I read on the Intuit community & Bogleheads that several people got around it by changing the FTC credit to a deduction, and then back to a credit so I tried that today - and voila, Smart Check said good to file!

Interesting. I now have three "versions" of my return:

1. taking the credit, including TTax automatic carry-over from previous years (just 2020),so $932 in FT paid in 2021, plus $411 carry-over. Fails Smart Check, of course, because of 1116-Schedule B.
2. in the return above, manually zeroing out the $411 carry-over in the worksheet. FTC drops to just $932 (correct) and Smart Check says "yes." I need to go back and check the actual for 1116 to see if it is goofy.
3. in yet another version, select"deduction". And since I take the standard deduction, I forfeit the $932 paid in FT. But Smart Check is happy.

So my numbers pencil out correctly in all three versions, but I'm not sure that version 2 won't throw a red flag.

I guess my next experiment -- while I wait for March 16 -- is to take version 3 (deduction) and go back and change it, ex post, to credit ...

I really would like to get this done -- I like being the first person to file a return under my SSN -- and I am leaving the US for two months at the end of April, so I want this behind me.

I AM BY NO MEANS AN EXPERT AT ANY OF THIS, I WOULDN'T USE TURBOTAX IF I WAS...AND I RESENT HAVING TO LEARN THE ABOVE, I PAY FOR TURBOTAX SO I DON’T NEED TO…

^^^ yep.

 

[marcuscato]

Interesting. I now have three "versions" of my return:

1. taking the credit, including TTax automatic carry-over from previous years (just 2020),so $932 in FT paid in 2021, plus $411 carry-over. Fails Smart Check, of course, because of 1116-Schedule B.
2. in the return above, manually zeroing out the $411 carry-over in the worksheet. FTC drops to just $932 (correct) and Smart Check says "yes." I need to go back and check the actual for 1116 to see if it is goofy.
3. in yet another version, select"deduction". And since I take the standard deduction, I forfeit the $932 paid in FT. But Smart Check is happy.

So my numbers pencil out correctly in all three versions, but I'm not sure that version 2 won't throw a red flag.

I guess my next experiment -- while I wait for March 16 -- is to take version 3 (deduction) and go back and change it, ex post, to credit ...

I really would like to get this done -- I like being the first person to file a return under my SSN -- and I am leaving the US for two months at the end of April, so I want this behind me.





^^^ yep.

You are on the right path, but if you can bear it, be patient until Mar 16th and give it a try. $900 is worth the wait. Until then you have to distract yourself Not judging, I am like you - I just want to be done with taxes rather than drag it on forever. But I have decided to wait until March 16th. If Mar 16th +1/2 days doesn't work, I will file with itemized version to avoid risk or reject/audit by IRS

 

[BarbWire]

One thing to note is that even though form 1116 has been around for a while, the form 1116 schedule B is new (if I am correct it was released by IRS in Dec 2021). So TurboTax simply has had no time to update their software to accommodate this. Given foreign tax code is super complex, coding this in, testing it, and releasing it to millions of users takes time, so I don't really blame them. Having said that, from what I am reading on the forums (not my own experience), some other software have made this available (like olt.com). Not sure though. IRS should not have released new forms end of the year, especially given it is so backlogged, and covid slows down TurboTax as well.

I would think that -- at a coding minimum -- Intuit could add the a checkbox option on the "Tell Us About Your Foreign Taxes" screen to include :

"you have no foreign tax carryovers from earlier years, or you have carryovers and you agree NOT to use them this year."
​

thus bypassing 1116 Schedule B in the coding logic. They've done this in the online version.

 

[cathy63]

I would think that -- at a coding minimum -- Intuit could add the a checkbox option on the "Tell Us About Your Foreign Taxes" screen to include :

"you have no foreign tax carryovers from earlier years, or you have carryovers and you agree NOT to use them this year."
​

thus bypassing 1116 Schedule B in the coding logic. They've done this in the online version.

I do have that option in my desktop version. Screenshot below. I got to this screen by going into forms mode and deleting form 1116, which was auto-created a month or so ago before it was fully ready because I have foreign tax on a 1099-DIV.

My return was e-filed and accepted once I deleted the unnecessary 1116. If you actually do have to file 1116, then this solution may not work. I think you could give it a try though and see if deleting the 1116 will make TTax will give you this screen and then skip creating the new Sched B if the box is checked.

 

[BarbWire]

If your FTC -- before carryovers -- was less than $300/$600 then Form 1116 isn't required and you get this choice in the software.

According to another forum, what TTax is checking for here is the individual who, for example, has $250 in this year's FTC (so no 1116 required) but who may also have the option of using $175 in carryovers -- which would sum to $425 and trip the Form 1116 /Form 1116 Schedule B requirement.

At least I *think* that's what's happening in the programming logic flow.....

 

[Midpack]

I will wait until the 16th, maybe even the 31st. Thanks for sharing all of you.

 

[marcuscato]

I will wait until the 16th, maybe even the 31st. Thanks for sharing all of you.

When form 1119, schedule B is a/v for e-filing (not JUST print), you may see this updated:

https://ttlc.intuit.com/community/f...tax-individual-personal-tax-products/00/26224

https://care-cdn.prodsupportsite.a.intuit.com/forms-availability/turbotax_fed_online_individual.html

In any case, when I see it, I will make sure to inform you

 

[RobLJ]

We had a foreign credit that was not allowed to submit until 2 weeks or so ago, but it was $23 and no carry-over.
So we just submitted (Feb 19); got the refund to our checking account today. I think we just ignored the TTax warning and submitted.

It was a huge refund due to an E-vehicle credit from last year and the fact that my 403b withdrawals mandate a 20% tax withholding (almost twice what we pay), so I wouldn't have cared about $23. We're paying off the RAV Prime with the refund with a decent chunk more left over for BTD.

I'm sorry since I don't think will help anyone with a carryover, just those like us who did have a Foreign Tax Credit.
Edit: We might have submitted the 24th. I think I had to wait until Feb 16 to get information from Schwab on closed end funds.

 

[audreyh1]

What is the maximum FTC that you can use?

So anything over it would be carried over to future years?

But presumably if you've been using TT every year, it would automatically carry over excess FTC?

A limit is determined by by your foreign income, and your overall taxed income too, I think.

I was not able to take my full foreign tax credit in 2020 due to lower taxable income, I think.

 

[audreyh1]

I do have that option in my desktop version. Screenshot below. I got to this screen by going into forms mode and deleting form 1116, which was auto-created a month or so ago before it was fully ready because I have foreign tax on a 1099-DIV.

My return was e-filed and accepted once I deleted the unnecessary 1116. If you actually do have to file 1116, then this solution may not work. I think you could give it a try though and see if deleting the 1116 will make TTax will give you this screen and then skip creating the new Sched B if the box is checked.

So you can carry it over to a future year?

 

[Midpack]

When form 1119, schedule B is a/v for e-filing (not JUST print), you may see this updated:

https://ttlc.intuit.com/community/f...tax-individual-personal-tax-products/00/26224

https://care-cdn.prodsupportsite.a.intuit.com/forms-availability/turbotax_fed_online_individual.html

In any case, when I see it, I will make sure to inform you

Thanks. I’m watching too so I’ll probably see it. And I’ll start a new return from scratch in the hope TT will transfer all my 2020 data correctly (that I tried to correct manually, and might have missed something). I have FTC and AMT carryovers from 2018, 2019 and 2020 (total about $1500 and $3000 respectively) along with 2021 presumably and I’d like to preserve and cash them in some day. I have no idea how they were/are calculated as TT has always handled them, and I’d rather not have carryovers but I can’t undo them as I understand it.

 

[RASAP]

Does H&R Block tax software support electronic filing with Form 1116 and 1116 Sch B? I may just switch over if it does.

 

[Midpack]

Does H&R Block tax software support electronic filing with Form 1116 and 1116 Sch B? I may just switch over if it does.

Several people on the Intuit community site say HRB has this issue handled.

 

[marcuscato]

Thanks. I’m watching too so I’ll probably see it. And I’ll start a new return from scratch in the hope TT will transfer all my 2020 data correctly (that I tried to correct manually, and might have missed something). I have FTC and AMT carryovers from 2018, 2019 and 2020 (total about $1500 and $3000 respectively) along with 2021 presumably and I’d like to preserve and cash them in someday. I have no idea how they were/are calculated as TT has always handled them, and I’d rather not have carryovers but I can’t undo them as I understand it.

Technically speaking you can forgo your carryovers from previous years and not claim them. IRS stands to benefit here, so they won't care. After 10 years, a carryover "expires" on its own. I would still preserve them, but remember that you always have an FTC max limit in a given year (depending on your US income, foreign income and tax owed etc), so there is a good chance that you will not get to apply ALL of the carryovers and lose a big chunk of them. Knowing what I know, I am avoiding having foreign mutual funds, stocks and bonds in taxable brokerage accounts (maybe 401K and IRAs is OK). The tax complications and carryover anxiety is not worth it.

 

[mhenry77]

The "Office of President" from TurboTax called me and let me know that even though *officially* the Form 1116 Schedule B is available for print-only (not e-filing) on Mar 31st, they are working to get everything implemented and make the form AND e-filing available by Mar 16th (no guarantees of course). So, here are the options:


1) DANG IT APPROACH: Use itemized deduction for the foreign tax credit (don't worry this will not convert your entire return from standardized to itemized). Con - this will lower your refund (only related to foreign taxes) given the itemized deduction lowers the income, not the tax directly like taking the foreign tax credit does.


2) I AM FEELING EXPERIMENTAL APPROACH: Use foreign tax credit, but in the Form 1116 Worksheet, zero-out the excess carryover to next year. Your refund for this year will be higher compared to approach (1) but you will lose the excess carryover for next year (not entirely sure if there are other repercussions for subsequent filing). Also, I haven't tried the method to know if the Form 1116 is generated correctly w/ the override in the worksheet or if there are potential issues w/ e-filing in the final steps or the IRS simply rejects the return or flags it for audit (even though you are actually leaving money on the table for IRS), or other issues.


3) PATIENCE APPROACH: Wait until Mar 16th if you can. Con: Mar 16th deadline may not be met and you will get more frustrated and will be closer to the April tax deadline (especially if you do not want to forgo foreign tax credit or yield to postal mailing, and need to switch to a different software/CPA etc). Also, you will be the "beta-tester" of this newly implemented feature on a complex foreign tax form; may or may not increase your reject/audit risk w/ IRS if it is buggy.


4) MONK-LEVEL PATIENCE APPROACH: Use the software as it stands today, fill the form 1116 Schedule B manually and mail it in.


5) EXTEND YOUR TAX SEASON FOREVVVVAAA APPROACH: Do (1) for now then amend the return much later in the year when TurboTax has the 1116 Form Sch B ready for e-filing. Not sure if the amendment process will run into the glitch, given the changes are significant.

5A) A variation on option (5): Request an extension for filing -- this gives you till October to file your return. Hopefully, TT will have the issue completely solved before then, and you will be able to e-file without having to amend. If you owe taxes (which I do), make sure to pay them before the April deadline. You can do this without having yet filed your tax return -- for example by using EFTPS (https://www.fiscal.treasury.gov/eftps/).

Before doing option (5A), I'd wait until as late as mid-April, to give TT a chance to fix the issue.

 

[walkinwood]

Thanks for all this information. I'm in the same situation.


I don't want to use any other software unless I absolutely have to. I like that TT carries forwards the required information from last year (IRA cost basis, FTC carry overs etc) . I assume, I'd have to enter all that into a new sw package & am afraid I'll miss something important.

 

[retire2020]

Does H&R Block tax software support electronic filing with Form 1116 and 1116 Sch B? I may just switch over if it does.

No. They have had 1116 available for a while but if you have carryover then no e-file. You’ll have to print your return then paper mail. OLT.COM supports 1116 sch b and I have everything ready there to e-file. I usually file 1st week of April.
Like all of you, I am extremely disappointed with big names like TT and HRB. I bought HRB this year and got a copy of TT from my brother and stuck. Why in the world these big names think that it will be just fine to paper mail your return when there is a huge backlog at IRS! Tiny company like olt made it work and these big names have been coming up with empty promises and excuses for past three weeks.

 

[RunningBum]

Technically speaking you can forgo your carryovers from previous years and not claim them. IRS stands to benefit here, so they won't care. After 10 years, a carryover "expires" on its own. I would still preserve them, but remember that you always have an FTC max limit in a given year (depending on your US income, foreign income and tax owed etc), so there is a good chance that you will not get to apply ALL of the carryovers and lose a big chunk of them. Knowing what I know, I am avoiding having foreign mutual funds, stocks and bonds in taxable brokerage accounts (maybe 401K and IRAs is OK). The tax complications and carryover anxiety is not worth it.

Ideally if you are going to own international funds you have them in taxable so that you have a chance to recoup the foreign taxes paid. I got out of them because the distributions were higher than domestic index funds like VTSAX (VG US total stock index) and they were also harder to predict. I'm giving away a few thousand $ in unused FT credits but it would be hard for me to be able to claim them the way my taxes have been in retirement so basically I've given up on them now rather than letting them probably expire unused.