Question

Foreign tax credit on dividends

Forum|Forum|3 years ago
March 2, 2023
1 reply
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In each of the past two years, my wife and I (we file a joint return) have paid slightly more than $600 in foreign taxes on dividend income. As a result, Turbotax has instructed us to file a Form 1116, with the result being that our allowable tax credit has been less than the amount we paid (and less than the $600 limit allowing one to report the credit directly on Form 1040 without filing the Form 1116). This has produced a seemingly anamolous outcome, in that had we paid less in foreign taxes (say an amount slightly less than $600), we would actually have received a larger credit. This year, our foreign taxes on dividend income was $560, but Turbotax is again directing us to file a Form 1116, presumably because we have a carryover of foreign taxes of $96, which again puts us in excess of the $600 limit that allows one to avoid filing a Form 1116. The result is again anamolous, as our allowable credit is about two hundreed dollars less than we would have received if we could have simply claimed the $560 on Form 1040. My question is (and I aplogize for taking so long to get here) whether we can ignore (or waive) the $96 carryover and simply claim the $560 we paid on Form 1040, and if so will we have to do an override to accomplish that and whether that will precude an e-filing by Turbotax.

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RobertB4444

You can over ride by deleting the 1116 with the carryover but by doing so you void the TurboTax guarantee on your return. Unfortunately, the 1116 is on file at the IRS and whether this would cause a delay in processing your return or cause the IRS to adjust your credit I don't know. But you should still be able to efile.

@taxnovice15

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rogge1722

Employee

If you qualify for the exemption but have carryovers, TT by default will not use the exemption. If after the calculations the credit on form 1116 line 35 is less than the exemption, you can elect to use the exemption in lieu of the calculation.

To do this, in Forms Mode, bring up the form 1116 worksheet. Scroll down to the header "Foreign Tax Credit Carryovers". At the bottom of the box for "Carryovers from 2021” in the cell to the right of "Carryover to 2022", put the pointer over the cell and right click. On the popup box select click on "Override" and delete the entry. After that the cell will be yellow and blank. Now if you check form 1116 line 35, it will now display the exemption amount and to the left will be the statement "Do Not File Form." You are done.