TaxAct not calculating foreign tax credit

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letsgobobby
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TaxAct not calculating foreign tax credit

Post by letsgobobby » Thu Mar 16, 2017 12:47 am

Bogleheads,

I get this message from TaxAct:

Explanation: Form 1116 - Foreign Taxes Paid
Foreign taxes paid can generally be taken as either an itemized deduction on Schedule A or as a credit on Form 1116. You made entries on Form 1116, but no credit was allowed. You may want to take the foreign taxes paid as an itemized deduction on Schedule A.
You may access Schedule A through the Q&A. Foreign taxes paid can be deducted on line 8 as other taxes.
In addition, if Form 1116 was automatically generated from Form 1099 entries, you will need to remove the foreign taxes from those forms. If there are other copies of the Form 1116 you will need to delete them.

I entered the data from my Vanguard 1099 but am getting a zero foreign tax credit. Any ideas what mistake I am making?

jebmke
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Re: TaxAct not calculating foreign tax credit

Post by jebmke » Thu Mar 16, 2017 12:52 am

If TaxAct is anything like most programs, you will have to complete Form 1116. I'd start by printing the form as-is and then go through the instructions for Form 1116 and see what appears to be missing. There are probably dialogs in TaxAct to populate the form. This particular form often takes a fair amount of manual intervention/outside calculations to get it right.
When you discover that you are riding a dead horse, the best strategy is to dismount.

Chip
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Re: TaxAct not calculating foreign tax credit

Post by Chip » Thu Mar 16, 2017 6:16 am

Are your foreign taxes paid less than the $300/$600 special election limit? If so, does TaxAct have a way to enter those taxes paid directly on Form 1040, line 48? That would be very simple. Form 1116 isn't required by the IRS if you're below those limits.

Wagnerjb
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Re: TaxAct not calculating foreign tax credit

Post by Wagnerjb » Thu Mar 16, 2017 7:57 am

letsgobobby wrote:Bogleheads,

I get this message from TaxAct:

Explanation: Form 1116 - Foreign Taxes Paid
Foreign taxes paid can generally be taken as either an itemized deduction on Schedule A or as a credit on Form 1116. You made entries on Form 1116, but no credit was allowed. You may want to take the foreign taxes paid as an itemized deduction on Schedule A.
I have no idea what TaxAct is doing, but the issue might be that you don't have any income tax liability (line 47 of the 1040). If you don't owe any tax, I suspect the software won't show a tax credit. Just a SWAG.

Best wishes.
Andy

livesoft
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Re: TaxAct not calculating foreign tax credit

Post by livesoft » Thu Mar 16, 2017 8:44 am

Not much to go on here. Maybe post a pic of your Tax Return? Lots of people seem to do that.

Have you EVER filed Form 1116 successfully before? If so, I'd look at a copy of an old one to see how things might be different this year.
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supersecretname
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Re: TaxAct not calculating foreign tax credit

Post by supersecretname » Thu Mar 16, 2017 9:23 am

I had this same exact problem. You need to add it somewhere else also. I'll see if I can figure out where I did it.

supersecretname
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Re: TaxAct not calculating foreign tax credit

Post by supersecretname » Thu Mar 16, 2017 9:27 am

federal->credits

there should be a line for foreign tax credit. Step through that process.

jane1
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Re: TaxAct not calculating foreign tax credit

Post by jane1 » Thu Mar 16, 2017 10:09 am

I had run into the same problem initially and thought TaxAct had messed it this year.
But when I entered the Intl Dividend Income (which goes to 1116), FTC showed up correctly on 1040 Pg 2.
I believe running alerts gets you to that data entry screen.

If you aren't able to get it to work, let us know and I will post more step by step instructions

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grabiner
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Re: TaxAct not calculating foreign tax credit

Post by grabiner » Thu Mar 16, 2017 10:31 pm

letsgobobby wrote:Bogleheads,

I get this message from TaxAct:

Explanation: Form 1116 - Foreign Taxes Paid
Foreign taxes paid can generally be taken as either an itemized deduction on Schedule A or as a credit on Form 1116. You made entries on Form 1116, but no credit was allowed. You may want to take the foreign taxes paid as an itemized deduction on Schedule A.
You may access Schedule A through the Q&A. Foreign taxes paid can be deducted on line 8 as other taxes.
In addition, if Form 1116 was automatically generated from Form 1099 entries, you will need to remove the foreign taxes from those forms. If there are other copies of the Form 1116 you will need to delete them.

I entered the data from my Vanguard 1099 but am getting a zero foreign tax credit. Any ideas what mistake I am making?
Did you forget to enter the foreign dividend income? Check your Form 1116 to see how much foreign income TaxAct thinks you earned; if that number is incorrectly entered as zero, you get no credit.
Wiki David Grabiner

letsgobobby
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Re: TaxAct not calculating foreign tax credit

Post by letsgobobby » Thu Mar 16, 2017 10:38 pm

Thanks, the alerts led me to a page I didn't understand. But I just manually entered the info about ordinary dividends and qualified dividends received from Vanguard and ended up with what seems like a reasonable number.

jane1
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Re: TaxAct not calculating foreign tax credit

Post by jane1 » Fri Mar 17, 2017 9:26 am

letsgobobby wrote:Thanks, the alerts led me to a page I didn't understand. But I just manually entered the info about ordinary dividends and qualified dividends received from Vanguard and ended up with what seems like a reasonable number.
Isn't your 1040 Line 48 same as all 1099-Div Box 6 (assuming foreign income/tax was all from passive MFs)?

jebmke
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Re: TaxAct not calculating foreign tax credit

Post by jebmke » Fri Mar 17, 2017 2:59 pm

jane1 wrote:
letsgobobby wrote:Thanks, the alerts led me to a page I didn't understand. But I just manually entered the info about ordinary dividends and qualified dividends received from Vanguard and ended up with what seems like a reasonable number.
Isn't your 1040 Line 48 same as all 1099-Div Box 6 (assuming foreign income/tax was all from passive MFs)?
Depends on what is done in Form 1116. There is additional data required that may factor into the calculation and limit the FTC. The software may simply jam a number into the form and carry it over to the 1040 but that doesn't make it correct. The 1116 is an odd duck. In some cases, you have to go as far as completing your state tax return in order to complete form 1116 correctly. For this reason, I almost always leave the 1116 to the bitter end of my process.

I just learned today from a fellow TaxSlayer user for Taxaide that TaxSlayer's professional system doesn't even support Form 1116. I haven't verified this. But after watching the debacle of their rollout this year I am glad they don't support it - they would botch the implementation for certain.

IMO the best approach for software developers WRT form 1116 is to do as little as possible and force the user to work through the IRS instructions and enter selected data manually.
When you discover that you are riding a dead horse, the best strategy is to dismount.

letsgobobby
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Re: TaxAct not calculating foreign tax credit

Post by letsgobobby » Fri Mar 17, 2017 3:19 pm

jebmke wrote:
IMO the best approach for software developers WRT form 1116 is to do as little as possible and force the user to work through the IRS instructions and enter selected data manually.
I don't have my data in front of me but I believe that is what I ended up having to do.

I had previously entered my Vanguard 1099 data from my ETF holdings into TaxAct's 1099 questionnaire, but apparently that did not include a field for the amount of foreign income or taxes paid. That must be why I was flagged and why I had to manually enter this data off the last page of my 1099 into TaxAct (to properly complete 1116). I wonder if this is why it is done this way, to save it to the 'bitter end'.

In contrast I had also already entered the information from Vanguard's "foreign tax paid" statement for my Vanguard mutual funds, and yet that had also not been included in my original foreign tax calculation, which was zero.

Once I entered the ETF data into the last step of TaxAct's 'alerts', it then somehow pulled into the calculation my Vanguard MF foreign taxes paid, and the final number matches the total amount of foreign tax paid.

I admit to not understanding the process or instructions well. I just do my very best to follow the directions and hope the numbers look right at the end.

This is definitely the 'anti-livesoft' approach.

jebmke
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Re: TaxAct not calculating foreign tax credit

Post by jebmke » Fri Mar 17, 2017 3:27 pm

If your passive FSI is less than $20K and you itemize, the main work involves figuring out what to put in line 2 and various subsets of line 3. Fortunately the software often calculates 3e which can be non-obvious because it includes some income on a gross basis. If your FSI goes over $20K then the calculations get significantly more complicated. I've never seen tax software get it right without intervention - I'm not even sure it is possible for anyone who itemizes.

For many people, the end result may be 100% eligible FTC for the amount paid anyway so even if the calculation is wrong on the form, the result may still be OK. I am sure I've done it wrong before.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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grabiner
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Re: TaxAct not calculating foreign tax credit

Post by grabiner » Fri Mar 17, 2017 7:10 pm

jebmke wrote:If your passive FSI is less than $20K and you itemize, the main work involves figuring out what to put in line 2 and various subsets of line 3. Fortunately the software often calculates 3e which can be non-obvious because it includes some income on a gross basis. If your FSI goes over $20K then the calculations get significantly more complicated. I've never seen tax software get it right without intervention - I'm not even sure it is possible for anyone who itemizes.
It isn't possible, because of a chicken-and-egg problem. You need to allocate your state income tax between foreign and US income. You can't determine the proper allocation until you have filled out your state return (unless your state doesn't tax the foreign income), and you fill out the federal return first.
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Chip
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Re: TaxAct not calculating foreign tax credit

Post by Chip » Sat Mar 18, 2017 6:32 am

jebmke wrote:I just learned today from a fellow TaxSlayer user for Taxaide that TaxSlayer's professional system doesn't even support Form 1116. I haven't verified this. But after watching the debacle of their rollout this year I am glad they don't support it - they would botch the implementation for certain.
Another TaxAide volunteer here. I can verify that our version of TSO does not allow Form 1116 to be filled in correctly (I know it's OOS; it was for my personal return). The main hangup for me was that TSO doesn't allow "RIC" to be entered in the "Foreign Country or US Possession" field. It's a pulldown list without RIC as an option. I've reported this simple issue to TS support but I'm sure you know how that's gone so far.....

Even worse, if one enters more than $300/$600 of foreign tax paid on a 1099-DIV and then doesn't access F1116 in any way, the default TSO behavior is to put a $300 or $600 credit directly on Line 48 of the 1040. No warning is given. As we've discussed here in the past, taking a reduced credit and not filing F1116 is NOT an option.

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