Turbo tax and overseas bank accounts

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brak
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Turbo tax and overseas bank accounts

Post by brak » Sun Dec 17, 2017 12:23 pm

Two questions: 1. what is the best computerized income tax program to use? 2. in general, are such programs able to take into account overseas bank accounts? Thanks in advance.

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HueyLD
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Re: Turbo tax and overseas bank accounts

Post by HueyLD » Sun Dec 17, 2017 3:27 pm

FBAR reporting is not part of income tax filing and TT does not provide it.

You need to file FinCENT 114 directly with the Treasury department.

Additional guidance on this IRS site. https://www.irs.gov/businesses/small-bu ... ounts-fbar

SlowMovingInvestor
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Re: Turbo tax and overseas bank accounts

Post by SlowMovingInvestor » Sun Dec 17, 2017 4:14 pm

FBAR is only part of overseas bank account reporting. There is also FATCA reporting (which does go the IRS), with a higher threshold than FBAR. TT does support that form.

gd
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Re: Turbo tax and overseas bank accounts

Post by gd » Mon Dec 18, 2017 6:41 am

To enter foreign interest income for Schedule B in TurboTax, pretend you have a 1099. You don't, but there is no other way to do it in the interview. It does not allow entering interest without a 1099 (edited this line after first post).

As the posts above say, TurboTax handles the Form 8938 included in the tax return, not the Treasury FBAR submission. I believe the last few years that has been entirely online, and is an entirely separate process from your tax return.

If you claim a Foreign Tax Credit for anything, and you receive interest income for anything in the same category (e.g. passive income) without a US income statement (e.g. 1099) on that income, you will be required to file Form 1116 to claim the Foreign Tax Credit. First page of 1116 instructions. Depending on the amount of credit you want to claim, you may find it preferable to abandon the credit.

I can't say what the current version of TaxAct does, but about 3-5 years ago TaxAct was unable to deal with this 1116 issue. TurboTax could just barely, and has gotten somewhat better over the years. Neither understands foreign bank interest, so the trick has been to find the secret checkbox in the personal information worksheet to force production of the 1116 form, and manually enter the foreign interest into the form. Save a separate copy of your file up to that point so you can back up and do things over, and be prepared to fiddle with it. I think the last year or two it even got the cryptic calculations on the 1116 first page involving % of gross income correct, and I've been able to e-file without manually changing its numbers. The first few years I did this I needed to override enough that it refused to e-file.

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oneleaf
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Re: Turbo tax and overseas bank accounts

Post by oneleaf » Mon Dec 18, 2017 11:53 am

gd wrote:
Mon Dec 18, 2017 6:41 am
If you claim a Foreign Tax Credit for anything, and you receive interest income for anything in the same category (e.g. passive income) without a US income statement (e.g. 1099) on that income, you will be required to file Form 1116 to claim the Foreign Tax Credit. First page of 1116 instructions. Depending on the amount of credit you want to claim, you may find it preferable to abandon the credit.

I can't say what the current version of TaxAct does, but about 3-5 years ago TaxAct was unable to deal with this 1116 issue. TurboTax could just barely, and has gotten somewhat better over the years. Neither understands foreign bank interest, so the trick has been to find the secret checkbox in the personal information worksheet to force production of the 1116 form, and manually enter the foreign interest into the form. Save a separate copy of your file up to that point so you can back up and do things over, and be prepared to fiddle with it. I think the last year or two it even got the cryptic calculations on the 1116 first page involving % of gross income correct, and I've been able to e-file without manually changing its numbers. The first few years I did this I needed to override enough that it refused to e-file.
This is a hairy situation for me. My Vanguard 1099-DIV tends to have about $200+ in foreign taxes paid, for which I want to take a credit. I also have an overseas bank account (no 1099-INT) for which I usually report a tiny amount of interest (like $20) with no foreign taxes paid.

Form 1116 implies I need to file the form. But I tend to think that since any foreign income that has foreign taxes paid associated with it DID have a 1099 (basically the Vanguard account), that I should not run into any issues NOT filing form 1116. There was no foreign taxes paid on my measly overseas account so any credit I am claiming in association with foreign passive income is limited to the Vanguard 1099-DIV's.

If I do end up needing to file 1116, I honestly don't know how to force it (with FreeTaxUSA, which is what I want to use), and I am also not sure how to even fill out the form. The form asks to name a country, but if I include all my Vanguard funds, it will be dozens of countries with different foreign income associated with it. My inclination is to NOT file form 1116, but curious what issues I would run into? I'd appreciate any thoughts on this matter! Thanks. :)

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kramer
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Re: Turbo tax and overseas bank accounts

Post by kramer » Tue Dec 19, 2017 6:39 am

Turbo tax handles all this, and you can also enter in foreign tax paid on your foreign bank income. I don't remember how it's done exactly, but I think like the earlier poster said, you just create a 1099 in Turbo Tax for it (even though there is no real 1099) and the interest gets entered on Schedule B. Where I live, the banks don't even send bank statements, let alone anything like a 1099 ... all tax withheld at source and you have to look up that percentage somewhere because the bank won't tell you (you just receive less interest than you would have otherwise received, no mention of withholding by the bank). I usually just guess how much interest I have earned on a couple of bank accounts ... all the amounts are small so it doesn't really matter... and I stopped taking the foreign tax credit on such miniscule amounts, anyway.

Yes, FBAR filing is separate and it's now due at tax time (around April 15), not later in the year like before. Last year they still gave a grace period for this ... not sure if that continues in 2018. For that filing, I got directly to the FINCEN site ... it's only difficult the first time when you need to look up all the information for your banks and enter detailed account information ... after that you just copy the information from year to year only changing the amounts.

gd
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Re: Turbo tax and overseas bank accounts

Post by gd » Tue Dec 19, 2017 8:06 am

oneleaf wrote:
Mon Dec 18, 2017 11:53 am
This is a hairy situation for me. My Vanguard 1099-DIV tends to have about $200+ in foreign taxes paid, for which I want to take a credit. I also have an overseas bank account (no 1099-INT) for which I usually report a tiny amount of interest (like $20) with no foreign taxes paid.

Form 1116 implies I need to file the form. But I tend to think that since any foreign income that has foreign taxes paid associated with it DID have a 1099 (basically the Vanguard account), that I should not run into any issues NOT filing form 1116. There was no foreign taxes paid on my measly overseas account so any credit I am claiming in association with foreign passive income is limited to the Vanguard 1099-DIV's.

If I do end up needing to file 1116, I honestly don't know how to force it (with FreeTaxUSA, which is what I want to use), and I am also not sure how to even fill out the form. The form asks to name a country, but if I include all my Vanguard funds, it will be dozens of countries with different foreign income associated with it. My inclination is to NOT file form 1116, but curious what issues I would run into? I'd appreciate any thoughts on this matter! Thanks. :)
My opinion is that it does not imply, it *states* that if you have foreign interest income not reported on a 1099-- and I'm not aware any foreign bank will issue you one, certainly not for a small conventional account-- you must file 1116 to claim any foreign tax credit whatsoever.

The Vanguard (or whatever) funds that claim foreign tax credit are one column of 1116 part 1 with "RIC" as the source, the foreign passive income without a 1099 is another, I believe specifying each country in a separate column. The calculations in those columns are.... odd, including using (from memory here) gross income that needs to be calculated separately from (and is larger than) anywhere else in my taxes.

This is an obscure tax problem. Free or budget tax programs go for the lowest common denominator, and aren't likely to solve it for you. You get what you pay for. 1116 isn't actually as utterly confusing as it seems, once you accept the fact that the instructions and maybe form itself doesn't actually give unambiguous guidance. I do it to the level I'll be comfortable defending in an audit, and move on.

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kramer
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Re: Turbo tax and overseas bank accounts

Post by kramer » Tue Dec 19, 2017 10:52 am

I have found that Turbo Tax handles form 1116 pretty well for foreign tax paid on investments. I had more trouble with Form 1116 when I used the basic turbo tax ... now I use the one two levels above that, can't remember the name (premiere?) , last year i paid around $55 on Amazon for it.

I went back to my 2014 taxes and I did what the OP wants to do, included the foreign tax on my foreign accounts based on my own estimates ... there is a separate column in my form 1116 for those foreign bank taxes ... all managed by Turbo Tax. HOWEVER, I have over the $300/$600 limit on foreign taxes paid and I am required to file form 1116 ... so I don't know if that makes a difference (I am over the limit due to Vanguard ETFs that hold foreign stocks).

After 2014 I didn't claim that foreign tax on foreign accounts because the amount is too small to worry about (under 20 dollars). But for $200, as in the previous poster's case, I would definitely do it.

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oneleaf
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Re: Turbo tax and overseas bank accounts

Post by oneleaf » Tue Dec 19, 2017 11:18 am

kramer and gd, thanks for the comments!
My biggest issue is that I am under the $600 limit so I have a hard time forcing the 1116. I can use TurboTax Online Premier (not the desktop version since I use a Linux computer) so I will give it another go this year and try it.

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oneleaf
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Re: Turbo tax and overseas bank accounts

Post by oneleaf » Tue Dec 19, 2017 1:14 pm

I think I figured out a good way to force a 1116 form on TurboTax Premier Online, for those with a foreign bank interest.

- Go ahead and add the foreign bank interest by filling in a 1099-INT even if you did not receive a 1099-INT. This ensures it shows up on Schedule B.
- When doing the Foreign Tax Credit section of TurboTax, do NOT check the button indicating you have no more foreign taxes to enter other than those already on 1099's.
- When going through the Interview, do NOT enter the country/fake-1099-INT you entered. Only add the RIC stuff from your brokerage.
- At the end, when asked if certain special circumstances apply, click YES. Only here, add the country and associated bank interest (even though it tells you NOT to do it for any that exist on 1099-INT).

The logic behind the steps is that TurboTax makes you enter a 1099-INT for it to show up on Schedule B. The FTC section assumes the 1099-INT is real and will likely make it so that the 1116 is not generated. So on FTC, you ignore the 1099-INT (fake) and add income (that is now assumed to be NOT reported on 1099-INT) and put in the same number. Now the 1116 must be generated because you finally can show that you have a legit reason to file the 1116.

Basically, you need to decouple the income reported on Schedule B with the income reported on 1116, but ensure they are both there. Hope that makes sense?

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oneleaf
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Re: Turbo tax and overseas bank accounts

Post by oneleaf » Tue Feb 13, 2018 4:39 pm

Just wanted to report back.

Turbotax Premier Online version does NOT work for this issue (generate Form 1116 for the purposes of overseas bank account in conjunction with FTC of mutual funds).

The most inconvenient thing was that the Interview Mode actually acts as if it will do it right. The appropriate checkmarks (that I have more foreign income/taxes to report other than what is already reported on my 1099's) will trigger it to do the following:
- Prompt me that I must file Form 1116 and to continue.
- Guide me through adding entries with gross income and taxes paid.
- Finishes the worksheet and ends the foreign tax credit section nicely.

But when I go print my forms, Form 1116 is not included. I called TurboTax a couple times and got passed around. Finally, this morning, an agent went through it with me, and then checked some of the information on the back end.

Apparently, TurboTax will not file a 1116 form UNLESS you exceed $300 (or $600 for MFJ) in foreign taxes. But I pointed out that this dollar amount limit is not the ONLY issue to look at, and she more or less disagreed with me. Apparently the IRS publications is not authoritative enough.

She says she will pass the info along to the appropriate team, which pretty much means nothing will happen. If this issue is important, I recommend the download version where you can apparently force the generation of the form. Or file it by hand.

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