IRS Form 1116 Foreign Tax Credit

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barrybonds282
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Joined: Thu Dec 16, 2021 11:00 am

IRS Form 1116 Foreign Tax Credit

Post by barrybonds282 »

Hello,

I am claiming the foreign tax credit in excess of $300 due to foreign taxes paid on income from funds containing international investments (1099-DIV line 7). How do I fill out IRS form 1116 in this case? My funds are:
VWIGX: Vanguard International Growth
VWICX: Vanguard International Core
IEFA: iShares Core MSCI EAFE ETF
IEMG: iShares Core MSCI Emerging Markets ETF
EMLC: VanEck J.P. Morgan EM Local Currency Bond ETF

Thank you for the help.
tetrad
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Re: IRS Form 1116 Foreign Tax Credit

Post by tetrad »

stan1
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Joined: Mon Oct 08, 2007 4:35 pm

Re: IRS Form 1116 Foreign Tax Credit

Post by stan1 »

Here are FinanceBuff's instructions for Turbo Tax:
https://thefinancebuff.com/foreign-tax- ... botax.html

H&R Block:
https://thefinancebuff.com/foreign-tax- ... block.html

If you are using other software you can probably read both of these and look for similarities in your software.
livesoft
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Re: IRS Form 1116 Foreign Tax Credit

Post by livesoft »

You will need to look at your fund/ETF sponsors' web sites to find the amount of foreign-source dividends for all those funds if the numbers were not reported on your 1099-DIV in the supplemental material. You may also need to get the amount of foreign-source qualified dividends from the same places.

Getting this information traditionally creates intense anxiety for many people, but you probably revel in the search and success of finding or calculating the numbers.
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Topic Author
barrybonds282
Posts: 67
Joined: Thu Dec 16, 2021 11:00 am

Re: IRS Form 1116 Foreign Tax Credit

Post by barrybonds282 »

I claimed in excess of the $300 foreign tax credit but forgot to complete form 1116 when I submitted my timely filed return. The IRS sent me a letter saying form 1116 was missing. So I filled it out to the best of my ability and submitted it on their special website, along with my 1099-DIVs clearly showing the foreign taxes paid. However, after checking the status of my refund, it appears they have disallowed the foreign tax credit completely, reducing my expected refund by the amount of the foreign tax credit claimed. Why might this have happened? Still waiting to receive their explanation. I'm worried they simply didn't get the documents I submitted on their special website and think I didn't respond within the 20 days. Any alternative explanations would be deeply concerning (though this one is already concerning on its own). These are foreign taxes paid by well-known mutual funds/ETFs listed above. Perhaps I made a mistake on the form 1116? Is that enough to completely disallow the foreign taxes I clearly paid? The amount isn't worth hiring a tax specialist but this is still concerning...
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retired@50
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Re: IRS Form 1116 Foreign Tax Credit

Post by retired@50 »

See link: viewtopic.php?t=211120

Some people aren't eligible to get the full foreign tax credit, or any tax credit, if you didn't actually owe any taxes.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
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grabiner
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Re: IRS Form 1116 Foreign Tax Credit

Post by grabiner »

livesoft wrote: Sun Apr 28, 2024 6:50 pm You will need to look at your fund/ETF sponsors' web sites to find the amount of foreign-source dividends for all those funds if the numbers were not reported on your 1099-DIV in the supplemental material. You may also need to get the amount of foreign-source qualified dividends from the same places.
Check the fund provider's website for a document with a name such as "2023 tax filing information". It will say something like, "This ETF distributed $2.00 per share in dividends, of which $1.80 were foreign, $1.20 were foreign qualified, and $0.20 foreign tax was withheld". If you received $1800 in dividends from the ETF, then $200 foreign tax was withheld, so $2000 in dividends would be taxable on Form 1099-DIV. You would then enter $1800 in foreign-source income, $1200 in foreign-source qualified dividends (needed only if you adjust your foreign income), and $200 in foreign tax credit for this ETF on your Form 1116. Add these numbers for all your ETFs.
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grabiner
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Re: IRS Form 1116 Foreign Tax Credit

Post by grabiner »

barrybonds282 wrote: Sun Apr 28, 2024 5:24 pm VWIGX: Vanguard International Growth
VWICX: Vanguard International Core
IEFA: iShares Core MSCI EAFE ETF
IEMG: iShares Core MSCI Emerging Markets ETF
EMLC: VanEck J.P. Morgan EM Local Currency Bond ETF
The active international funds and EM bond fund are not good choices for a taxable account, because of large capital gains on the active stock funds and large non-qualified dividends on the bond fund. You might consider selling them and replacing them with more tax-efficient funds; if you like these funds, you can hold them in your IRA.
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