Form 1116 Foreign Tax Issue

[Sunset]

I use H&R Block downloaded software.

Normally I just enter the 1099-DIV and the foreign tax paid is less than $600 in total (married) and it works, I get the credit.

This year I am getting a ~$2K income from RRIF (Like IRA) from Canada, and they took $263 taxes.

Our 1099-DIV is only $322. Adding in the Canadian one and its $585 so should be totally acceptable.

Figured I have to fill out a form 1116 for foreign tax paid for this new income
I did that and the result was only $216 of the Canadian paid tax was allowed as credit. Worse is it removed the existing $322 foreign credit . This is stupid (to me) as the existing amount was unrelated.

I need to figure this out, as next year I plan on taking ~18K from Canada, so will have foreign tax of ~$2,700 just from Canada.

I did a second form 1116 for the 1099-DIVs , to claim the $322 back, and entered in the Total Divs on the 1099 form ? Seems to me, the total DIV's number is wrong to use, but the foreign tax is scattered all over the statement from various funds.

Do I enter the total DIV amount per the statement ? Or add up all the div payments for each fund for the year

Finally, one person on the internet wrote, they just claim it exactly like an IRA and enter the foreign tax paid as paid to the Fed. Seems totally wrong to me, but works really well.

What is the right way

 

[SevenUp]

Finally, one person on the internet wrote, they just claim it exactly like an IRA and enter the foreign tax paid as paid to the Fed. Seems totally wrong to me, but works really well.

Might work fine for filing, but when the IRS compares withholding received on your behalf to what you claim on your return, things may not go really well....

 

[Sunset]

Might work fine for filing, but when the IRS compares withholding received on your behalf to what you claim on your return, things may not go really well....

If they really checked that carefully, the scammers would have a lot more trouble and the IRS wouldn't send out $5 Billion per year to scammers.

Still you are right, it's better to do the correct way. Which is why I'm asking.

 

[Sunset]

I went ahead and redid the 1116 using just the ETF's that paid foreign tax, so the total income amount dropped by 90%.

It still came out to the same Credit of $322 for the Divs, so that is great and works and is what I'll use.

The Canadian foreign tax credit only credits me $216 out of $263 , so means I'll have to carry forward the credit , to possibly NEVER be used.
This shows the foreign tax credit only recovers some of the foreign tax paid, unlike what some simple statements suggest that a person gets it all back.

 

[audreyh1]

I went ahead and redid the 1116 using just the ETF's that paid foreign tax, so the total income amount dropped by 90%.

It still came out to the same Credit of $322 for the Divs, so that is great and works and is what I'll use.

The Canadian foreign tax credit only credits me $216 out of $263 , so means I'll have to carry forward the credit , to possibly NEVER be used.
This shows the foreign tax credit only recovers some of the foreign tax paid, unlike what some simple statements suggest that a person gets it all back.

Lots of years I got it all back - years where my income and taxes paid were higher overall.

 

[xlf11]

If your total FPC is less than $600 for MFJ, could you just bypass the form 1116 (TT says so)?

 

[audreyh1]

If your total FPC is less than $600 for MFJ, could you just bypass the form 1116 (TT says so)?

That’s what I thought.

 

[xlf11]

That’s what I thought.

Here is the link:
https://turbotax.intuit.com/tax-tip...116-to-claim-the-foreign-tax-credit/L2ODfqp89

 

[Sunset]

I may switch to TT next year, as H&R Block does not carry forward the unused foreign tax credit.

While H&R will allow me to adjust the foreign tax paid, if I make the change on the form, it won't allow e-filing, and I'd rather carry forward and e-file.

 

[MichaelB]

I may switch to TT next year, as H&R Block does not carry forward the unused foreign tax credit.

While H&R will allow me to adjust the foreign tax paid, if I make the change on the form, it won't allow e-filing, and I'd rather carry forward and e-file.

I switched from HRB to TT for that reason and it’s the primary reason I continue with TT.

 

[xlf11]

I may switch to TT next year, as H&R Block does not carry forward the unused foreign tax credit.

While H&R will allow me to adjust the foreign tax paid, if I make the change on the form, it won't allow e-filing, and I'd rather carry forward and e-file.

You cannot carry forward without filling form 1116. So fill up form 1116 for more than $600 FPC and carry forward if not used all credit. Less than $600 and no carry forward, no need for form 1116.

 

[Midpack]

Lots of years I got it all back - years where my income and taxes paid were higher overall.

I get a credit for all of it almost every year, depends on foreign tax relative to income as you note.

 

[Sunset]

Just posting here as, I finally figured out the correct way to declare the Canadian RIF income.

When I tried to claim it as a simple 1099 (like a pension), it failed to e-file due to the missing payer TIN number.

The solution was:
For Federal I claimed it as Form 1099-Misc and claimed on the foreign tax credit form for it, which of course didn't give full credit for the taxes paid to Canada. Missing TIN is OK here to e-file.

Important for me, is IL considers Pension/retirement money as non-taxable, and there is a spot to fill out the amount of other income that should be excluded by IL.
Someone living in a income-tax free State wouldn't have this issue.

Next year I'll use TT as will be carrying unused foreign tax credits and H&R doesn't do that and allow e-file.