Question

I got Foreign Income (Dividends), and I pay Foreign Taxes. How can I input getting Form 1116 for calculating Tax Credit?

Forum|Forum|3 years ago
March 10, 2023
2 replies
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I got Foreing Income Dividends, and I paid Foreing Taxes. Because it is a foreign income, I don't have 1099. How to input this transaction in Turbo Tax?

TurboTax Online

A

AnnetteB6

The foreign taxes paid on your dividends should be reported on your Form 1099-DIV. Be sure to enter the foreign taxes paid when you are entering the dividends information.

If foreign taxes on dividends or other passive income is the only foreign tax that you paid, then filing an actual Form 1116 should not be necessary. However, you will still need to visit the Form 1116 Foreign Taxes section of your return in order to have the foreign tax credit applied properly on your Form 1040.

TurboTax will walk you through the process. Take a look at the following TurboTax help article for the steps to get started:

Where do I enter the foreign tax credit (Form 1116) or deduction?

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E

estev09Author

I followed the advice of AnnetteB6; downloading 1099-DIV, I completed the form showing the Chilean Dividends as ordinary Dividends and the Foreign Tax paid to the Chilean government.

Turbo Tax treats the Tax paid as a reduction of the Taxable Income. Furthermore, it becomes part of the standard reductions, which means I got only $10,000 plus the Chilean Taxes of $27,222, for a total of $37,222 as a reduction of the Taxable Income. The software is not filing form 1116.

Because is a treaty between the US and Chilean Goverment, I understand that Foreign Tax payments will be offset against the U.S. taxes on a dollar-per-dollar basis. Now, I am suffering double taxation over the same Income.

Can you help me?

Thanks

T

ThomasM125

When you went through the routine in TurboTax where you apply for a credit for taxes paid to a foreign country, you had a choice between taking a credit against your taxes or deducting the foreign taxes against income. You must have chosen the deduction option, that is why you are getting an itemized deduction not a tax credit. You can correct that by going back through the foreign taxes section and changing your choice to the credit option.

As far at the treaty is concerned, more than likely it states you can exempt the foreign income from US taxation if you paid taxes on that income in the foreign country. To do that in TurboTax, you enter the income as you already have done, then you follow these instructions to enter a negative adjustment to income to cancel it out. If you do this, you shouldn't take the foreign tax credit or deduction, since you can't do that and exempt the income, you need to do one or the other.

Choose the Federal option on your left menu bar
Choose Wages & Income
Find Less Common Income in the list of income sources
Use the Show More option to expand the choices and choose Miscellaneous Income, 1099-A, 1099-C
Choose the Other Reportable Income option and find Other Taxable Income in that section
Enter a description for your treaty and the amount as a negative number

You need to include Form 8833 Treaty-Based Return Position Disclosure with your tax return. TurboTax does not support this form, so you will have to complete it separately and attach it to your tax return which you will have to file by mail.

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L

Linthorn

I am trying to do the same thing. My 1099-B has income and taxes paid on investments in about a dozen countries. When I try to enter them into TurboTax, it allows me to put in the info for the first one, but then erases all the countries I set up so I can't enter this data. What is the process? I have H&B.

A

AbrahamT

Here's what you do

First things, first

Enter the dividend income under Wages and Income like this,

then hit enter, enter till you get to the screen Report Foreign dividends, put 10,000 like this

and then the next screen will ask you where the dividends are from, enter Other Countries like this

then type in "foreign tax credit" in the magnifying glass in the upper right hand size

When you get to this screen, enter one country

then next income from foreign sources

click on Report Income, then this screen check off the box

then when you get to this screen, apportion the amount allocated to the specific country. In this case, I selected Afghanistan as an example I used 33% from the total 10,000 of dividend income originally reported on the 1099DIV

Then hit enter, enter till you get to the screen Reporting Taxes Paid, do you want to review your entries, hit no

first year eligible, hit yes

then elect simplified calculation, hit yes

And then on the screen No other Income or Expenses, hit no

And then completing forms 1116, hit Continue, continue, continue till you get to this screen

I hope this works out for you. Let us know either way. Thank you.

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L

Linthorn

I think this is getting there. After I did this I had to manually edit income and taxes for each country on each 1116, correct? When I do that it appears to work correctly.

I thank you for this, although this is so non-intuitive. I was on the phone with tech support last night for 2 hours and we got nowhere.