Question

Incorrect foreign tax credit

Forum|Forum|4 years ago
March 17, 2022
2 replies
0 views

I have no idea why TurboTax 2021 is unable to compute the foreign tax credit automatically even though all the 1099 forms containing the information were imported directly from the banks/brokerages. I had to enter the amounts manually so it could complete Form 1116 for Interest and Dividends.

So I went back to 2020 and 2019 returns to check if the info provided was correct. I found that my 2020 return completely missed the foreign tax credit while my 2019 had an incorrect number for the credit in Schedule 3 (1116 was not filled).

These appear to be basic bugs. Am I doing something wrong or is this well-known?

Thanks!

T

ThomasM125

The IRS allows you to skip form 1116 Foreign Tax Credit if your foreign taxes, as reported on 1099 forms, are less than $300 (single filer) or $600 (married-joint.)

If you qualify, then the foreign tax credit will be placed directly on line 1 of schedule 3 and it will show as a tax credit on form 1040.

Otherwise, you have to use the Foreign Taxes menu option in the Estimates and Other Taxes Paid section of TurboTax to populate form 1116 and have the credit appear on your tax return. TurboTax will ask you about your foreign taxes when you go through the Deductions and Credits section.

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S

SS62Author

So you are saying we have to enter the values for populating Form 1116 manually? Why can't TT pull those values from the 1099 forms and populate them automatically? It seems to populate Schedule 3, Line 1 automatically if the tax is less than $600 for married joint.

M

Mike9241

i've been using TT for over 10 years. some years I needed the 1116 others I didn't. never had a problem with the FTC

S

SS62Author

The question is - were you just following the step-by-step flow or were you populating the appropriate values by navigating to the right screens because of your knowledge of Foreign Tax Credit?

I am not saying you cannot get it right if you know the rules and are able to navigate the workflow correctly.

I am concerned TT's workflow is inadequate for those who are not familiar with all the rules for Foreign Tax Credit. For example, it does not have to provide the option of deducting foreign tax as an itemized deduction if standard deduction is already chosen. Plus it doesn't warn the user that Foreign tax has exceeded $600 - therefore the user MUST provide the values manually to populate Form 1116. Ideally it should automatically populate Form 1116 and ask the user to verify the values. That would help a novice user. Otherwise mistakes are bound to occur.