H&R Block and foreign tax credit

[Sojourner]

Just thought I'd pass along some friendly advice to anyone who might still be wondering which tax software to choose. I decided to go with H&R Block Premium this year -- mostly due to the outrageous increase in the price of TaxAct over the past year.

I just went through and keyed in all my numbers and info this afternoon, and the good news is I'm getting a much larger than expected refund.

The bad news is that the H&R Block software makes filling out Form 1116 (figuring your foreign tax credit) much harder than TaxAct or TurboTax. It provides kind of a mini-interview, where it gives you some very high level, general guidance, but mostly you are left to fill out the raw Form 1116 manually. This wasn't terrible for me, since all my foreign income and tax comes from mutual funds, but it certainly was more work than what I had to do with TaxAct last year.

So, if you have a lot of foreign income / tax or even a moderately complicated foreign income situation, you may want to avoid H&R Block. Note that I'm using the desktop/download version.

 

[LOL!]

A few years ago TurboTax had the same problem, but each year Intuit would incrementally improve their interview. Also the 1099-DIVs have improved, too.

For instance, for many foreign mutual funds, the entire dividend is not "foreign source" dividend, so one cannot enter 100% of the dividends into Form 1116. A couple years ago, one had to go to the fund web site and see the 95% or 78% of the dividend was "foreign source" and do the math and enter that value since it was no where on the 1099-DIV. In other words, it is unlikely that TaxAct did it properly in past years.

Nowadays, at least my 1099-DIVs have an extra page with the actual dollar amount of the foreign source dividends. My funds pay a few dollars in US (non-foreign) dividends because of the little bit of cash they have around.

I suspect that most taxpayers probably just assumed the dividends were 100% foreign sourced and didn't worry about it.

But once you have done the HRBlock Form 1116 deal, you can do it easily the next year.

 

[RunningBum]

Ugh, just hitting form 1116 on H&R Block now. I'm trying to match it to my 1116 from last year filled in by TurboTax but it's not so obvious right now. I think it's time for a break. I think I'm regretting not paying a bit extra for TurboTax. Maybe it'll be better on second look. I also just have mutual fund foreign income from VT Tot Intl.

 

[Texas Proud]

Just thought I'd pass along some friendly advice to anyone who might still be wondering which tax software to choose. I decided to go with H&R Block Premium this year -- mostly due to the outrageous increase in the price of TaxAct over the past year.

I just went through and keyed in all my numbers and info this afternoon, and the good news is I'm getting a much larger than expected refund.

The bad news is that the H&R Block software makes filling out Form 1116 (figuring your foreign tax credit) much harder than TaxAct or TurboTax. It provides kind of a mini-interview, where it gives you some very high level, general guidance, but mostly you are left to fill out the raw Form 1116 manually. This wasn't terrible for me, since all my foreign income and tax comes from mutual funds, but it certainly was more work than what I had to do with TaxAct last year.

So, if you have a lot of foreign income / tax or even a moderately complicated foreign income situation, you may want to avoid H&R Block. Note that I'm using the desktop/download version.

I do not know what you are doing wrong... I downloaded my info from Vanguard and it filled out everything, including my foreign tax credit info...


When I went to look at the info... it said that I already had the credit with the mutual fund info.... so it seems if you put the info when you do the mutual funds, it is done...

 

[Gotadimple]

I do not know what you are doing wrong... I downloaded my info from Vanguard and it filled out everything, including my foreign tax credit info...


When I went to look at the info... it said that I already had the credit with the mutual fund info.... so it seems if you put the info when you do the mutual funds, it is done...

This is true, the foreign tax credit is on the form 1099, enter it in the same spot and IF form 1116 is needed, the software will transfer the amount.

- Rita

 

[LOL!]

A couple of things:

If one paid less than $300 (single) or $600 (joint) in foreign taxes as shown on 1099-DIV, then tax software is great because no Form 1116 is required. I suspect this is most taxpayers' experience.

The 1099-DIV does not show the foreign tax credit, but it does show the foreign taxes paid. Some people do not get a credit for all the foreign taxes they paid and this is especially true if they don't pay US taxes. The FTC is so that one is not double-taxed, so if one is not paying US taxes, then they are not double-taxed. Technically, one gets a tax credit for the US taxes that got calculated on the foreign income that was taxed, but only up to the foreign taxes paid. So if the US tax was more, then one pays some US taxes on the income. If the US tax was less, then one doesn't get a full credit.

 

[LOL!]

Ugh, just hitting form 1116 on H&R Block now. I'm trying to match it to my 1116 from last year filled in by TurboTax but it's not so obvious right now. I think it's time for a break. I think I'm regretting not paying a bit extra for TurboTax. Maybe it'll be better on second look. I also just have mutual fund foreign income from VT Tot Intl.

Here is an outline of what my HRBlock "interview" Form 1116 looks like:
Before Line 1: Regular tax box checked. Short description "From 1099s". Box a "Passive income" checked. f: Resident Country: USA, g: Country: RIC

Then Mini-worksheet for Line 1: b. "Not from K-1" is the sum of Foreign Source Income from the 1099-DIVs. This is NOT the sum of the dividends from your Foreign funds because not all of the dividends paid by Foreign funds has to be foreign source. It is possible though that your fund has 100% foreign source income. Check the extra info found with the 1099-DIV.

The software will fill in most numbers until one gets to the Mini-Worksheet for Part II where one puts the foreign "Taxes withheld on dividends" in "a. ii. Not from K-1s":

Below the worksheet pictured, put "1099 TAXES" on row A above Line 8. (This is in the Form 1116 instructions which would be helpful to read.)

 

[RunningBum]

I didn't have anything filled in from importing my info from Vangaurd (not "VT" as I mistyped above). I don't want to import again because H&R wasn't clear when I imported the first time whether it got everything, and when I did it again it doubled everything rather than recognizing duplicates and suppressing or asking me.


As it turns out I don't think I'm going to have any fed income tax (as I said in another thread), so that 1116 credit won't do me any good.


TT wasn't the easiest with 1116 either, but it did seem to try to do more.


I'm not sure I'm a big fan of H&R for other things either. When you look at the forms it is really cluttered with worksheet info. I can hardly make out what I'm looking for on the 1040. It'd be nice if it gave me the option to show or hide the supporting info. If that option is there I haven't seen it yet. Maybe it's just harder for me to read because it's different, and I'll get used to it.

 

[niven]

I'm not sure I'm a big fan of H&R for other things either. When you look at the forms it is really cluttered with worksheet info. I can hardly make out what I'm looking for on the 1040. It'd be nice if it gave me the option to show or hide the supporting info. If that option is there I haven't seen it yet. Maybe it's just harder for me to read because it's different, and I'll get used to it.

There's a "HIDE MINI WS" button when you are looking at forms like the 1040.

 

[Tractor guy]

I too had this experience with HRBlock's desktop software. As LOL! said, the trigger is $600 for married filing jointly. I was just over this and had to fill in 1116. The annoying thing was I don't think HRBlock's software told me I had to fill out form 1116. If so, I missed it. I found the need when I was comparing 2016's return with 2015's and noticed a missing credit.

As others have said, HRBlock's "help" on form 1116 is murky, as is the IRS instructions for this form. I think I probably did it right but it took a lot of repeated reading and head scratching. I guess I'll find out if I did it correctly if I ever get audited.

I also may switch back to turbotax next year because of the way HRBlock handled this part of the process.

 

[jebmke]

The chances of any software getting Form 116 correct without significant user involvement is very low.You really have to read the instructions carefully and typically some side calculating is involved -- even if you are below the $20K threshold after which it really gets involved.

 

[Texas Proud]

The chances of any software getting Form 116 correct without significant user involvement is very low.You really have to read the instructions carefully and typically some side calculating is involved -- even if you are below the $20K threshold after which it really gets involved.

I will second that.... even one of the big accounting firms got mine wrong when I worked overseas... for two years!!!

I knew because I filled them out for a year when I was with one of the big firms....

 

[Sojourner]

I'm not sure I'm a big fan of H&R for other things either. When you look at the forms it is really cluttered with worksheet info. I can hardly make out what I'm looking for on the 1040. It'd be nice if it gave me the option to show or hide the supporting info. If that option is there I haven't seen it yet. Maybe it's just harder for me to read because it's different, and I'll get used to it.

Yeah, having gotten familiar with the intricacies of the H&R Block interface now, I definitely see some shortcomings. My biggest gripe (aside from the Form 1116 issues) is that when you are interacting with a basic form, like 1040, when you click on one of the dollar amounts on a particular line, it lets you highlight it but otherwise does nothing. In TaxAct, if I click on any dollar amount anywhere and try to change it, it takes me directly to the supporting form where that amount was derived from, and then I can change the numbers quickly and easily. This is great for modeling different tax scenarios. In H&R, clicking on a dollar amount doesn't do anything obvious. You have to know which form or worksheet that number was derived from and then manually go open it, or you have to right-click and then select "Jump to related" and then choose the relevant supporting form. Not a huge issue, but definitely not as user friendly as TaxAct.

 

[samclem]

In H&R, clicking on a dollar amount doesn't do anything obvious. You have to know which form or worksheet that number was derived from and then manually go open it, or you have to right-click and then select "Jump to related" and then choose the relevant supporting form. Not a huge issue, but definitely not as user friendly as TaxAct.

I dunno--right clicking on the form fill-in area in H&R (aka TaxCut) seems to give a lot of intuitive options (mark entry tentative, add itemized list, jump to related, override, etc). Maybe I'm just used to it.

 

[jebmke]

I dunno--right clicking on the form fill-in area in H&R (aka TaxCut) seems to give a lot of intuitive options (mark entry tentative, add itemized list, jump to related, override, etc). Maybe I'm just used to it.

Same here. When I was testing levels of ROTH conversion to hit the top of a bracket I just opened the 1099-R directly and changed the numbers and the return recalculated instantly.

 

[RunningBum]

Question for you Foreign Tax credit experts:


I owe no tax for 2016 because of limiting income for an ACA subsidy--line 44 is 0.


I paid $1103 in foreign taxes, but cannot take the credit this year because I have no taxes to take the credit against.


Is this the kind of thing I can use the carryback or carryforward provision for? Pub 514 says:

If, because of the limit on the credit, you cannot use the full amount of qualified foreign taxes paid or accrued in the tax year, you are allowed a 1year carryback and then a 10year carryover of the unused foreign taxes.

What I'm unclear is that if they are talking about some other limit on the foreign tax credit, or if my situation qualifies.


Edit: Found my answer when I thought to google "Foreign tax credit limit" and found https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit-how-to-figure-the-credit

Foreign Tax Credit Limit



Your foreign tax credit cannot be more than your total U.S. tax liability multiplied by a fraction. The numerator of the fraction is your taxable income from sources outside the United States. The denominator is your total taxable income from U.S. and foreign sources.


If you have foreign taxes available for credit but you cannot use them because of the foreign tax credit limit, you may be able to carry them back to the previous tax year and forward to the next 10 tax years. Refer to Carryback and Carryover in Publication 514, Foreign Tax Credit for Individuals.

Looks like I'm good to carry this back to last year with a 1040-X for 2015.

 

[Texas Proud]

Question for you Foreign Tax credit experts:


I owe no tax for 2016 because of limiting income for an ACA subsidy--line 44 is 0.


I paid $1103 in foreign taxes, but cannot take the credit this year because I have no taxes to take the credit against.


Is this the kind of thing I can use the carryback or carryforward provision for? Pub 514 says:

What I'm unclear is that if they are talking about some other limit on the foreign tax credit, or if my situation qualifies.


Edit: Found my answer when I thought to google "Foreign tax credit limit" and found https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit-how-to-figure-the-credit





Looks like I'm good to carry this back to last year with a 1040-X for 2015.

I have not read anything on this for many years, but I think you need to be careful... IIRC, the tax credit carryforward and carryback has to be related to the same type of income.....

IOW, I worked overseas and had a big FTC.... more than I could take... but it was related to foreign earned income... so I could only use that credit for any other foreign earned income that I had, not foreign investment income etc. I lost about $12,000 of FTC due to this...

To be fair, it was my company who paid it, but I still could have used it on my own if I could have found a way...

 

[RunningBum]

It's all from foreign taxes paid on dividends from VG Total International.

 

[Texas Proud]

It's all from foreign taxes paid on dividends from VG Total International.

Then yes, I think you can take it back or go forward... check as some credits you are required to go back and others it is your option... I have no idea what this one requires...

 

[easysurfer]

It's all from foreign taxes paid on dividends from VG Total International.

Same here for me, all from foreign taxes paid on dividends from VG Total International.

I use Turbotax which allows me to choose to take the credit as a deduction or do the calculating route. I really don't understand the calculating route so rather than just guessing, I choose deduction.

 

[RunningBum]

Same here for me, all from foreign taxes paid on dividends from VG Total International.

I use Turbotax which allows me to choose to take the credit as a deduction or do the calculating route. I really don't understand the calculating route so rather than just guessing, I choose deduction.

You're almost always better off taking the credit. If you have a $1000 in foreign taxes paid, and you're in the 15% bracket, you only get $150 back on the deduction, but the full $1000 back on the credit, if you owe enough US taxes to take the credit against. I didn't this year, but I carried most of it back to last year, and will carry the rest of it forward for up to 9 years to a year in which I do pay enough taxes. Also, you can't carry back or forward the deduction if it does you no good this year, as would have been my case.

 

[Texas Proud]

Well, made me look....

I have $23 for 2015 and $19 for 2016 that I could take back... however, I do not know if the formula would give it all back to me or not...


AND, I sold my international holdings so I would not have to deal with not getting my credit!!

 

[gumbo2go]

H&R Block vs Turbo Tax

I had some issues with my previous filing when using H&R software. I may give Turbo Tax a go for this year. The IRS has no sense of humor!

 

[easysurfer]

You're almost always better off taking the credit. If you have a $1000 in foreign taxes paid, and you're in the 15% bracket, you only get $150 back on the deduction, but the full $1000 back on the credit, if you owe enough US taxes to take the credit against. I didn't this year, but I carried most of it back to last year, and will carry the rest of it forward for up to 9 years to a year in which I do pay enough taxes. Also, you can't carry back or forward the deduction if it does you no good this year, as would have been my case.

I usually only have peanuts in the foreign taxes paid. So, I just take the deduction to avoid any head scratching and guessing.

 

[jebmke]

I usually only have peanuts in the foreign taxes paid. So, I just take the deduction to avoid any head scratching and guessing.

If you have < $300 ($600 if filing joint) all you have to do is jam it in as a credit. Tap three keys and you're done.

If your passive foreign sourced income is < $20,000, filing for the credit is a bit more time consuming but not complicated. The instructions for form 1116 are a bit intimidating until you cross out all the sections that don't apply -- then it isn't that tricky.

When you have FSI > $20,000 it does get a bit messy.