TurboTax: Foreign Tax Credit, Form 1116 Schedule B mess

[rvindave]

File now, refile later

I'm in that same boat. I went ahead and filed w/out the benefit of the rollover from last year. I plan to refile later, once the IRS releases the form update and Turbo Tax is updated. Many years I run into tax situations that cause me to refile; with Turbo, it's pretty painless.

 

[Midpack]

I’m wondering if my FTC and AMT carryovers (4 yrs so far) are ever going to be a benefit. I’ve had some issues with Form 1116 every year, this year was the worst by far, and I still had to do most of the work manually using IRS (nightmare) instructions. It’s been a credit of about $100-150/year on about $800-1100 foreign taxes paid the last two years, so it’s not nothing. But I may just go the deduction route starting in 2022 if I’m never going to recoup the bulk of the carryovers…I could filed more than a month ago if not for foreign taxes paid. I’m guessing when I end Roth conversions I’ll have a larger FTC (as I did before I started conversions) but I may never catch up with carryovers, and RMDs and SS may see to that…

 

[Animorph]

After updating TT this morning it went through the review process without a problem, ready to efile. Though I didn't try to eFile yet.

I checked the 1116 and 1116 B. They had the right numbers before 1116 B was added, but failed the review without the form. 1116 B is viewable now, with just the carryover from this year.

So it looks like with all the numbers already entered, everything fixed itself and all I had to do was run the review again and eFile.

I'm also not sure if I'll be able to claim the carryover in future years. My giant Roth conversions are over, so my normal tax rate is lower now and going forward. I did have a strange case with WAIOX where total dividends equaled the foreign taxes paid. Kind of tough to match 100% taxation without a carry over. I'm sure that didn't help this year. I'm selling that this year.

 

[walkinwood]

TT updated today and I was able to eFile federal with no issues (needed the 1116 B pdf attachment issue to be fixed). Return was accepted.


After last year's fiasco where many TT efile returns went into limbo for quite a while (I can't remember the circumstances), it was a relief to get it accepted quickly.

 

[Midpack]

After all that, I went through my returns for 2018 thru 2021 (already filed and accepted), side by side with the IRS specific instructions, and TT (and/or I) still got Form 1116 wrong. I was entitled to a much larger FTC in 2019, 2020 and 2021. I could file an amended return, but I will get it all back in 2022-24 including all the carryovers, so I'm not going to bother with a 2021 1040X. As far as I can tell, TT has never gotten my Form 1116 correct even though I entered my foreign dividend amounts and foreign taxes paid, I have had to alter it every year - and the "Easy Step" section on Foreign Tax Deductions has confused me every year... I never wanted to learn or know this much about foreign tax credits, but at least it will pay off versus just taking the deduction (worthless) vs a credit. Live and learn...

And I did a side by side of right vs wrong Form 1116 with notes and saved a doc, so I get it right easily in 2022, otherwise I'd never remember what I know today.

 

[audreyh1]

We’ve entered everything with the FTC plus carryover from last year. Looks OK, but haven’t run error checking yet. We also have to review everything first before attempting to file.

 

[MichaelB]

I filed yesterday, including form 1116 but no carryover. Return was accepted 45 minutes later.

 

[mrfeh]

After all that, I went through my returns for 2018 thru 2021 (already filed and accepted), side by side with the IRS specific instructions, and TT (and/or I) still got Form 1116 wrong. I was entitled to a much larger FTC in 2019, 2020 and 2021. I could file an amended return, but I will get it all back in 2022-24 including all the carryovers, so I'm not going to bother with a 2021 1040X. As far as I can tell, TT has never gotten my Form 1116 correct even though I entered my foreign dividend amounts and foreign taxes paid, I have had to alter it every year - and the "Easy Step" section on Foreign Tax Deductions has confused me every year... I never wanted to learn or know this much about foreign tax credits, but at least it will pay off versus just taking the deduction (worthless) vs a credit. Live and learn...

And I did a side by side of right vs wrong Form 1116 with notes and saved a doc, so I get it right easily in 2022, otherwise I'd never remember what I know today.

I used TT for about 5 years until last year (our 2020 return). For reasons I won't go into here, I had a CPA do it.

Anyway, he was using our 2019 return to help with the 2020 return and notified us that we weren't credited for foreign taxes paid in 2019. He filed an amended return for us.

So, you aren't the only one. It seems TT has screwed this up for many years now.

 

[Midpack]

I used TT for about 5 years until last year (our 2020 return). For reasons I won't go into here, I had a CPA do it.

Anyway, he was using our 2019 return to help with the 2020 return and notified us that we weren't credited for foreign taxes paid in 2019. He filed an amended return for us.

So, you aren't the only one. It seems TT has screwed this up for many years now.

Does seem strange. TT asks for foreign taxes paid and foreign income in EasyStep but those entries don’t transfer to Form 1116, and I have to read the IRS instructions and complete the form manually. TT has calculated my FTC and AMT carryovers and “remembers” them each year based on my form 1116. Has gotten it wrong for at least the last three years.

 

[mrfeh]

Does seem strange. TT asks for foreign taxes paid and foreign income in EasyStep but those entries don’t transfer to Form 1116, and I have to read the IRS instructions and complete the form manually. TT has calculated my FTC and AMT carryovers and “remembers” them each year based on my form 1116. Has gotten it wrong for at least the last three years.

So, I'll be using TT again this year. Is Form 1116 the one I need to pay attention to? Fill it out manually?

 

[BarbWire]

Having waited until March 18 to re-engage in the 1116 fiasco, on Friday I tried again.

Previous years' confusion/frustration with FTC in TT have trained me to save a copy of my return BEFORE beginning FTC in case I (inevitably) have to try a few times. And each year I have dreaded working on the FTC section in TT -- horrible feeling in the pit of my stomach that I am not doing it correctly.

So I was gob-smacked this year when--in Easy Step -- it simply identified the two investment accounts in which I hold VEU, I typed in RIC and then the income from VEU in each account and .... it was done. And the "refund due" amount changed to exactly what I expected with both the FTC and my 2020 carryover.

Smart check passed. Says ready to eFile. (I haven't done that yet -- I need to have a look at 1116 and 1116-Sch B first)

So I'm a bit nervous: it was TOO easy this year (not accounting for the forms fiasco). Did anyone else find it much easier, in the end, than in previous years? Can I really stop dreading the FTC section of TT?

 

[BarbWire]

Apologies for a second consecutive post, but a quick question (and the opaque IRS instructions don't help):

I hold VEU, and from my 1099 have the following information:

* total dividend income (all dividends earned= dividends paid + taxes withheld)
* Foreign source total income (90.93%)
* Foreign source qualified income (68.92%)
* Foreign source adjusted income (0%)

I have calculated:

[Total dividends] * Foreign Source total (90.93%) = foreign income

for the question "how much of this income was from foreign countries." Is this correct amount to report? Or do I need to use the "qualified income%" in a reporting calculation?

 

[cathy63]

Yes, use the 90.3%.

The qualified percentage is only needed if you have more than $20K of Foreign QDivs or your income is greater than ~$165K (~$330K if MFJ). If you are in that situation, you should probably consult a professional. Not that TTax can't do it, but it's an area where there's very little help; probably because the instructions are murky and most people don't try to do it themselves.

 

[Midpack]

So, I'll be using TT again this year. Is Form 1116 the one I need to pay attention to? Fill it out manually?

I've had to for at least three years, last one TT did right was 2018. However, it could be that I answered something wrong in EasyStep, the foreign tax credit in the deduction section has been confusing to me - but that could be my fault. Again what's puzzling is I entered foreign passive income/dividends and foreign tax paid in the wages section - but those numbers don't appear on Form 1116 or anywhere else that I can see...

Again, at least TT has kept track of my FTC carryovers, even if the Form 1116 was wrong for 2 years...

 

[Midpack]

Yes, use the 90.3%.

The qualified percentage is only needed if you have more than $20K of Foreign QDivs or your income is greater than ~$165K (~$330K if MFJ). If you are in that situation, you should probably consult a professional. Not that TTax can't do it, but it's an area where there's very little help; probably because the instructions are murky and most people don't try to do it themselves.

Thanks for verifying for both of us. In my case it was 86.04% for example, it will be different for each mutual fund.

I finally got Form 1116 right, and I'm filing amended Fed and state returns mid April, worth the "hassle" for me as I use up 67% of my carryovers, and will get the rest back with my 2022 return.

 

[explanade]

When you report income against foreign taxes, do you add both ordinary and qualified dividends?

Or my cap gains associated with foreign taxes paid?

 

[RunningBum]

I've had to for at least three years, last one TT did right was 2018. However, it could be that I answered something wrong in EasyStep, the foreign tax credit in the deduction section has been confusing to me - but that could be my fault. Again what's puzzling is I entered foreign passive income/dividends and foreign tax paid in the wages section - but those numbers don't appear on Form 1116 or anywhere else that I can see...

Again, at least TT has kept track of my FTC carryovers, even if the Form 1116 was wrong for 2 years...

My FTC looks correct for 2019, except that I owed $0 in taxes so I couldn't use any of it, and it got carried over. I sold my Intl Fund early in 2020 so I came out ahead just getting the small credit via Schedule 3. I think I would've gotten less via 1116 even with my carryovers and it was nice to skip it.

It's a lot of steps in TT, but essentially the calculations are:
1) Figure the % of income that was foreign.
2) Multiple % in 1) by the foreign taxes paid
3) Take the lesser of calculation in 2) and taxes paid

Step 3) has been what limits me in the lower income years as I do less Roth conversions to get the ACA subsidy. Is this were you got a smaller FTC than you think you were entitled to? You did step 1), right?


The ACA subsidy is a better deal for me than FTC. I guess when I'm 65 I could invest in intl funds again and try to get that credit, but I'd have to figure out how to make the FTC carryover show up again on tax returns where I didn't pay any foreign taxes that year, and I'd probably have to redo my 2020 taxes to use 1116 instead of Sched 3.

 

[BarbWire]

Yes, use the 90.3%.

The qualified percentage is only needed if you have more than $20K of Foreign QDivs or your income is greater than ~$165K (~$330K if MFJ). If you are in that situation, you should probably consult a professional. Not that TTax can't do it, but it's an area where there's very little help; probably because the instructions are murky and most people don't try to do it themselves.

Thanks! I'm not in QDivs territory so I guess I've been doing it right for the past few years!




EDITED TO ADD: e-filed at 2:38pm, and accepted at 2:55pm! 17 minutes ...

 

[walkinwood]

I just filled my 1116 manually & verified 1116 Schedule B and was relieved to find that TT did everything right.



My foreign taxes withheld are all from mutual funds/ETFs.

 

[rkser]

A new problem I am facing with TT .

When I click on to start TT, it starts updating automatically & gives me an error 1603 & will not let me in to the Program.

I wonder if anybody else faced this scenario.

I deleted the antiviral, deleted temporary files & the cache, I manually updated TT from a Link TT sent me in a email. Still no go.

 

[Sunset]

A new problem I am facing with TT .

When I click on to start TT, it starts updating automatically & gives me an error 1603 & will not let me in to the Program.

I wonder if anybody else faced this scenario.

I deleted the antiviral, deleted temporary files & the cache, I manually updated TT from a Link TT sent me in a email. Still no go.

<deleted bad info>
Seems it is a TT issue:

This site has lots of TT users having the same issue, some find solutions.
https://answers.microsoft.com/en-us/windows/forum/all/fatal-error-1603-when-trying-to-update-turbotax/c7a1c45f-b118-4672-b2a4-6e2a853c866b

The page 2 of user comments says it's not a MS issue, and uninstall and reinstall of TT fixes it. Read the comments for a couple of pages to see.

 

[audreyh1]

Apologies for a second consecutive post, but a quick question (and the opaque IRS instructions don't help):

I hold VEU, and from my 1099 have the following information:

* total dividend income (all dividends earned= dividends paid + taxes withheld)
* Foreign source total income (90.93%)
* Foreign source qualified income (68.92%)
* Foreign source adjusted income (0%)

I have calculated:

[Total dividends] * Foreign Source total (90.93%) = foreign income

for the question "how much of this income was from foreign countries." Is this correct amount to report? Or do I need to use the "qualified income%" in a reporting calculation?

I think it’s the total income. We never found where qualified was used. And Fidelity which now provides the total foreign income info does not provide a number for qualified.

 

[audreyh1]

We e-filed today with form 1116 including carryover from 2020, and it all went through OK and was accepted!

 

[rkser]

<deleted bad info>
Seems it is a TT issue:

This site has lots of TT users having the same issue, some find solutions.
https://answers.microsoft.com/en-us/windows/forum/all/fatal-error-1603-when-trying-to-update-turbotax/c7a1c45f-b118-4672-b2a4-6e2a853c866b

The page 2 of user comments says it's not a MS issue, and uninstall and reinstall of TT fixes it. Read the comments for a couple of pages to see.

Thankyou Sunset