Oy vey…Form 1116?

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CrazyCatLady
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Oy vey…Form 1116?

Post by CrazyCatLady »

I started working on my taxes and I paid more than $300 in foreign taxes so it looks like I need to do a Form 1116 for the first time. My bracket is greater than 32% and I use H&R Block software.

The H&R Block questions didn’t make sense, so I googled it and came across an article from the Finance Buff. He makes it sound like Form 1116 is a huge headache (basically saying you shouldn’t hold international in taxable so you can avoid it) and he also says that H&R Block won’t do the required calculations for you to adjust income because of qualified dividends, and you have to figure it out yourself. He also mentions supplemental materials, but I’m not seeing any in my Vanguard account.

Can anyone provide any insights/articles than can help me figure out how to complete the Form 1116? It’s making no sense to me at this point (I have a block when it comes to tax forms as it is). Should I just switch over to TurboTax? He seems to imply that may be easier.

Thanks! :sharebeer


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nalor511
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Re: Oy vey…Form 1116?

Post by nalor511 »

Hr block can do it fine. Country is RIC. You need gross income, gross foreign income, and foreign taxes. Fill those 3 things in the right places and the ftc will calculate
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Re: Oy vey…Form 1116?

Post by jebmke »

Actually, I found H&RB does 1116 pretty well now. There are a lot of threads on 1116; it isn't as bad as it sounds for many people. If you don't itemize and your Foreign Sourced Income is under $25K it is quite simple. If you itemize, it gets a bit complicated, especially if your state has an income tax. If you have more than $25K of FSI it does get a bit messy.

edit: someone pointed out that the threshold is $20K not $25K.

For forms like this I always read the IRS instructions before starting anything in the software. The 1116 is a multi-purpose form so there is a lot of stuff in there that typically doesn't apply to passive investors. Just cross all that out to avoid getting confused.
Last edited by jebmke on Sat Feb 04, 2023 5:34 pm, edited 1 time in total.
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Makefile
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Re: Oy vey…Form 1116?

Post by Makefile »

CrazyCatLady wrote: Sat Feb 04, 2023 4:52 pm I started working on my taxes and I paid more than $300 in foreign taxes so it looks like I need to do a Form 1116 for the first time. My bracket is greater than 32% and I use H&R Block software.

The H&R Block questions didn’t make sense, so I googled it and came across an article from the Finance Buff. He makes it sound like Form 1116 is a huge headache (basically saying you shouldn’t hold international in taxable so you can avoid it) and he also says that H&R Block won’t do the required calculations for you to adjust income because of qualified dividends, and you have to figure it out yourself. He also mentions supplemental materials, but I’m not seeing any in my Vanguard account.

Can anyone provide any insights/articles than can help me figure out how to complete the Form 1116? It’s making no sense to me at this point (I have a block when it comes to tax forms as it is). Should I just switch over to TurboTax? He seems to imply that may be easier.

Thanks! :sharebeer
Here are the supplementary materials: https://advisors.vanguard.com/iwe/pdf/FASFTCWS.pdf

Maybe it's different for 2022, but my last try with H&R Block was that it couldn't handle your needing to adjust your foreign source income for qualified dividends. That is because you're supposed to adjust them on line 1a, but nowhere else on the form. H&R couldn't handle the idea of line 1a and line 3d being different numbers without using an override.

To better understand 1116 you have to think in reverse of normal terms. The form is trying to make sure you don't get credited back more foreign tax than the US tax you paid on the same income. Higher (foreign) taxes are good because you might get them credited. Deductions are bad because they reduce the apparent US tax rate on the dividends. The adjustment for qualified dividends is forcing down the % of your overall income that is foreign so as to prevent you from applying your effective rate to the dividends when you actually only paid 15% or 20%. It's unfair because it always uses 37% as the denominator when you probably pay less than that as your marginal rate, and because it doesn't take into account net investment income tax.
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Re: Oy vey…Form 1116?

Post by cacophony »

nalor511 wrote: Sat Feb 04, 2023 4:56 pm Hr block can do it fine. Country is RIC. You need gross income, gross foreign income, and foreign taxes. Fill those 3 things in the right places and the ftc will calculate
I think you need more than than that to do it correctly. I had a thread about it last year if anyone wants all the details: viewtopic.php?t=374151
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Re: Oy vey…Form 1116?

Post by Makefile »

cacophony wrote: Sat Feb 04, 2023 5:19 pm
nalor511 wrote: Sat Feb 04, 2023 4:56 pm Hr block can do it fine. Country is RIC. You need gross income, gross foreign income, and foreign taxes. Fill those 3 things in the right places and the ftc will calculate
I think you need more than than that to do it correctly. I had a thread about it last year if anyone wants all the details: viewtopic.php?t=374151
Yes. You have to adjust qualified dividends if your foreign qualified dividends are $20,000 or more or you are in a 32% or higher tax bracket. I think many read that as "and" and it seems to them a more obscure/uncommon situation than it actually is.
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Re: Oy vey…Form 1116?

Post by jebmke »

Makefile wrote: Sat Feb 04, 2023 5:25 pm
cacophony wrote: Sat Feb 04, 2023 5:19 pm
nalor511 wrote: Sat Feb 04, 2023 4:56 pm Hr block can do it fine. Country is RIC. You need gross income, gross foreign income, and foreign taxes. Fill those 3 things in the right places and the ftc will calculate
I think you need more than than that to do it correctly. I had a thread about it last year if anyone wants all the details: viewtopic.php?t=374151
Yes. You have to adjust qualified dividends if your foreign qualified dividends are $20,000 or more or you are in a 32% or higher tax bracket. I think many read that as "and" and it seems to them a more obscure/uncommon situation than it actually is.
It also gets a bit messy if you itemize and have a state income tax. You have to finish the state return and then go back and tweak 1116 to apportion expenses correctly. There are a couple of threads on this in the bowels of the forum.
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prd1982
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Re: Oy vey…Form 1116?

Post by prd1982 »

As others have said, you need to make manual adjustments. There are 2 lines on the 1116 that need manual adjustments:
* Line 1a, gross income from the fund
* Mini worksheet for line 18.

Here is the gist of a small Excel worksheet I developed for me as MFJ with VTIAX:

Code: Select all

Row.     A             B
3	$N1		VTIAX dividends (1099 L 1a)
4	$N2		H&R Block Sched D tax worksheet line 18 (taxable income - qualified div - capital gains). 
5	%N3		% of 1099 1a that is foreign source income.  Specified in VG forms. Is 100% for VTIAX
6	%N4		% 1099 1a that is foreign source qualified.  Specified in VG forms. Is 73.63% for VTIAX
7	=A3*A5		Foreign source income
8 	=A3*A6		Foreign source qualified income
9	$N5		Is 32% rate (340,100 for MFJ)
10	20,000		Cutoff for qualified income. Not sure if MFS has the same cutoff.  You should look at the 1116 documentation.
11	FORM1		Adjusted foreign source income. This is the value to put in Line 1a.
				FORM1: =IFS(AND(A4<A9, A8<A10),A7,TRUE,0.4054*A8 + (A7-A8))
12	FORM2		Set form 116 line 18 mini-worksheet check box to use exception?
				FORM2: =IFS(AND(A4<A9, A8<A10),"Yes",TRUE,"No")			
You should then go to H&R Block forms view, and open form 1116. Go to the mini-worksheet for line 18. See the "Note: We use this ... Check here if ...". Check the box if the FORM2 value above is YES. So you want to check the box if you are NOT reducing the foreign income. You want to use the mini-worksheet if you adjusted the foreign income.

At least I hope the calculations above are accurate.

Personally I would switch to Turbo Tax if I have to adjust the value. You are in the territory of possibly having a foreign tax carry over/back, H&R Block requires you to file a paper return in this case; TurboTax can efile.

Edit: fixed column header
Last edited by prd1982 on Sun Feb 05, 2023 6:56 am, edited 1 time in total.
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Re: Oy vey…Form 1116?

Post by stan1 »

It's some advanced data entry but between the updates to Vanguard's Consolidated 1099 in recent years and updates to Turbo Tax I figured it all out using Turbo Tax interview interface not forms interface, including the qualified dividends, but I also had a supplemental spreadsheet. TY22 forms are improved over TY21. I can't speak to H&R Block since I use Turbo Tax. Took me about 30 minutes to figure it out and complete it I'd estimate.
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Re: Oy vey…Form 1116?

Post by grabiner »

Makefile wrote: Sat Feb 04, 2023 5:15 pm Maybe it's different for 2022, but my last try with H&R Block was that it couldn't handle your needing to adjust your foreign source income for qualified dividends. That is because you're supposed to adjust them on line 1a, but nowhere else on the form. H&R couldn't handle the idea of line 1a and line 3d being different numbers without using an override.

To better understand 1116 you have to think in reverse of normal terms. The form is trying to make sure you don't get credited back more foreign tax than the US tax you paid on the same income. Higher (foreign) taxes are good because you might get them credited. Deductions are bad because they reduce the apparent US tax rate on the dividends. The adjustment for qualified dividends is forcing down the % of your overall income that is foreign so as to prevent you from applying your effective rate to the dividends when you actually only paid 15% or 20%. It's unfair because it always uses 37% as the denominator when you probably pay less than that as your marginal rate, and because it doesn't take into account net investment income tax.
Another unfairness is that you only adjust your foreign qualified dividends, not your US qualified dividends.

However, you only need to make this adjustment if you have at least $20,000 of foreign source qualified dividends and capital gains (requiring about $1M in foreign stock), or you are in the 32% or higher tax bracket.
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iceport
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Re: Oy vey…Form 1116?

Post by iceport »

prd1982 wrote: Sat Feb 04, 2023 6:13 pm As others have said, you need to make manual adjustments. There are 2 lines on the 1116 that need manual adjustments:
* Line 1a, gross income from the fund
* Mini worksheet for line 18.

Here is the gist of a small Excel worksheet I developed for me as MFJ with VTIAX:

Code: Select all

Row.     A             B
3	$N1		VTIAX dividends (1099 L 1a)
4	$N2		H&R Block Sched D tax worksheet line 18 (taxable income - qualified div - capital gains). 
5	%N3		% of 1099 1a that is foreign source income.  Specified in VG forms. Is 100% for VTIAX
6	%N4		% 1099 1a that is foreign source qualified.  Specified in VG forms. Is 73.63% for VTIAX
7	=A3*A5		Foreign source income
8 	=A3*A6		Foreign source qualified income
9	$N5		Is 32% rate (340,100 for MFJ)
10	20,000		Cutoff for qualified income. Not sure if MFS has the same cutoff.  You should look at the 1116 documentation.
11	FORM1		Adjusted foreign source income. This is the value to put in Line 1a.
				FORM1: =IFS(AND(A4<A9, A8<A10),A7,TRUE,0.4054*A8 + (A7-A8))
12	FORM2		Set form 116 line 18 mini-worksheet check box to use exception?
				FORM2: =IFS(AND(A4<A9, A8<A10),"Yes",TRUE,"No")			
You should then go to H&R Block forms view, and open form 1116. Go to the mini-worksheet for line 18. See the "Note: We use this ... Check here if ...". Check the box if the FORM2 value above is YES. So you want to check the box if you are NOT reducing the foreign income. You want to use the mini-worksheet if you adjusted the foreign income.
Thank you for this, prd1982! This is enormously helpful!

I've been woefully confused about exactly what figures the IRS expects us to use on Form 1116, and I've been searching far and wide for any clarifying clues. Your computations with documentation cover the numbers with more specificity than I've found anywhere else — anywhere!

Lucky for me, I qualify for the "adjustment exception." But If I didn't, your post would at least allow me to make a reasonable stab at it.

prd1982 wrote: Sat Feb 04, 2023 6:13 pm At least I hope the calculations above are accurate.
Aye, well there's the rub, isn't it?

I'd say this kind of illustrative explanation belongs in the wiki article — Foreign tax credit — except there probably isn't a Boglehead available who is certain enough about their understanding of Form 1116 to be willing and able to responsibly commit to any explanation as fact.

One of my pet peeves is the way many forum members rather dismissively direct confused taxpayers to just read the IRS publications to understand the US tax code. As if it were that easy! Seasoned and savvy investors spend literally hundreds of posts here arguing among themselves about exactly what those publications say, even on some of the narrowest questions. The publications are not clearly written, and the ambiguity leads different people to conflicting interpretations more often than not.

With that said, even compared to the typical hash the IRS publications make out of their explanations, they really outdid themselves on the Form 1116 instructions. Critical details are buried by almost incidental language using vague terms. Practically identical explanations are repeated in multiple cross-referenced sections. At one point they even re-define, on the fly, what a "Schedule D filer" is. It's almost as if they *tried* to make it as confusing as possible without technically making a statement that contradicts the law.

And I'm not alone in thinking the IRS really dropped the ball on this topic. Here's the Finance Buff's take on this:
The Finance Buff wrote:If you don’t qualify for the adjustment exception, good luck learning how to adjust from the Form 1116 instructions. You’re better off switching to TurboTax, which does the adjustment for you when you need it.
[emphasis added]

How to Enter 2022 Foreign Tax Credit Form 1116 in H&R Block

Sorry for the rant. Thanks again for taking the time to show your work!
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Re: Oy vey…Form 1116?

Post by jebmke »

iceport wrote: Tue Feb 07, 2023 11:40 am One of my pet peeves is the way many forum members rather dismissively direct confused taxpayers to just read the IRS publications to understand the US tax code. As if it were that easy! Seasoned and savvy investors spend literally hundreds of posts here arguing among themselves about exactly what those publications say, even on some of the narrowest questions. The publications are not clearly written, and the ambiguity leads different people to conflicting interpretations more often than not.
I don't disagree but in many cases, posts are made having done no research or having relied on google/media articles and other disreputable sources. Other times someone posts a question that is answered by the simple arithmetic on a form (e.g. Schedule D); most forms simply use addition and subtraction. Some forms use advanced math like division and multiplication.

In many cases, the IRS instructions are pretty clear - especially if you follow the line by line instructions for a form (e.g. Form 1040 General Instructions). Some of the publications (non-instructions) can be a bit confusing.

Multi-use forms like 1116 can also appear to be daunting. What I normally do is read through and cross off all the sections that don't apply to me. Very often, what remains is not lengthy or confusing.
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Re: Oy vey…Form 1116?

Post by iceport »

jebmke wrote: Tue Feb 07, 2023 11:46 am
iceport wrote: Tue Feb 07, 2023 11:40 am One of my pet peeves is the way many forum members rather dismissively direct confused taxpayers to just read the IRS publications to understand the US tax code. As if it were that easy! Seasoned and savvy investors spend literally hundreds of posts here arguing among themselves about exactly what those publications say, even on some of the narrowest questions. The publications are not clearly written, and the ambiguity leads different people to conflicting interpretations more often than not.
I don't disagree but in many cases, posts are made having done no research or having relied on google/media articles and other disreputable sources. Other times someone posts a question that is answered by the simple arithmetic on a form (e.g. Schedule D); most forms simply use addition and subtraction. Some forms use advanced math like division and multiplication.

In many cases, the IRS instructions are pretty clear - especially if you follow the line by line instructions for a form (e.g. Form 1040 General Instructions). Some of the publications (non-instructions) can be a bit confusing.

Multi-use forms like 1116 can also appear to be daunting. What I normally do is read through and cross off all the sections that don't apply to me. Very often, what remains is not lengthy or confusing.
All fair points.

Sometimes, though, the IRS text addresses a specific question in only an oblique, indirect and incomplete way. That's when it's especially non-constructive to just point to the text.
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Re: Oy vey…Form 1116?

Post by cacophony »

iceport wrote: Tue Feb 07, 2023 11:40 am
prd1982 wrote: Sat Feb 04, 2023 6:13 pm As others have said, you need to make manual adjustments. There are 2 lines on the 1116 that need manual adjustments:
* Line 1a, gross income from the fund
* Mini worksheet for line 18.

Here is the gist of a small Excel worksheet I developed for me as MFJ with VTIAX:

Code: Select all

Row.     A             B
3	$N1		VTIAX dividends (1099 L 1a)
4	$N2		H&R Block Sched D tax worksheet line 18 (taxable income - qualified div - capital gains). 
5	%N3		% of 1099 1a that is foreign source income.  Specified in VG forms. Is 100% for VTIAX
6	%N4		% 1099 1a that is foreign source qualified.  Specified in VG forms. Is 73.63% for VTIAX
7	=A3*A5		Foreign source income
8 	=A3*A6		Foreign source qualified income
9	$N5		Is 32% rate (340,100 for MFJ)
10	20,000		Cutoff for qualified income. Not sure if MFS has the same cutoff.  You should look at the 1116 documentation.
11	FORM1		Adjusted foreign source income. This is the value to put in Line 1a.
				FORM1: =IFS(AND(A4<A9, A8<A10),A7,TRUE,0.4054*A8 + (A7-A8))
12	FORM2		Set form 116 line 18 mini-worksheet check box to use exception?
				FORM2: =IFS(AND(A4<A9, A8<A10),"Yes",TRUE,"No")			
You should then go to H&R Block forms view, and open form 1116. Go to the mini-worksheet for line 18. See the "Note: We use this ... Check here if ...". Check the box if the FORM2 value above is YES. So you want to check the box if you are NOT reducing the foreign income. You want to use the mini-worksheet if you adjusted the foreign income.
Thank you for this, prd1982! This is enormously helpful!

I've been woefully confused about exactly what figures the IRS expects us to use on Form 1116, and I've been searching far and wide for any clarifying clues. Your computations with documentation cover the numbers with more specificity than I've found anywhere else — anywhere!
...
Also, see here (though note that there's a typo that is corrected soon after): viewtopic.php?p=6596977#p6596977
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Re: Oy vey…Form 1116?

Post by iceport »

cacophony wrote: Tue Feb 07, 2023 12:15 pm Also, see here (though note that there's a typo that is corrected soon after): viewtopic.php?p=6596977#p6596977
Yeah, that's a pretty good example too. It fleshes out the ambiguity of the instruction to "Include the results on line 1a..." There's a heckuva lot of heavy lifting that one word, "include," is doing there!

1) Separate the foreign source dividends from all dividends. 2) Separate the foreign source qualified dividends from all foreign source dividends. 3) Multiply the foreign source qualified dividends by one of two possible adjustment factors. 4) Add the result to the foreign source non-qualified dividends found as a by-product in Step 2.

*That's* what goes on Line 1a: the *sum* of foreign source non-qualified dividends plus the *adjusted* foreign source qualified dividends.



I wonder if the authors of the IRS publications ever get a kick out of how much confusion they can still manage generate, even after all the editing, fact-checking and proof-reading that must go on behind the scenes. :annoyed
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Re: Oy vey…Form 1116?

Post by grabiner »

iceport wrote: Tue Feb 07, 2023 11:40 am With that said, even compared to the typical hash the IRS publications make out of their explanations, they really outdid themselves on the Form 1116 instructions. Critical details are buried by almost incidental language using vague terms. Practically identical explanations are repeated in multiple cross-referenced sections. At one point they even re-define, on the fly, what a "Schedule D filer" is. It's almost as if they *tried* to make it as confusing as possible without technically making a statement that contradicts the law.
It is made even worse by the fact that the regulations themselves often make no sense. For state income taxes when the state taxes some of the foreign income, the Form 1116 instructions refer you to Publication 514, which says,
IRS Publication 514 wrote: If the total income taxed by the state is greater than the amount of U.S. source income for federal tax purposes, then the state tax is allocable to both U.S. source and foreign source income.
If the total income taxed by the state is less than or equal to the U.S. source income for federal tax purposes, none of the state tax is allocable to foreign source income.
So, if you have $5000 in foreign source income, and $5000 of your federal income is from Treasury bonds, then the state tax is not considered to have been imposed on your foreign source income. And if you have $110K in total income and $20K in foreign source income, but $100K in state-taxable income, then the state tax is considered to have been imposed on $90K of US-source and $10K of foreign-source income.

This is something that all tax software gets wrong, and it isn't even a bug, but a necessary limitation. Tax software does your US tax before it does your state tax. Thus, when you get to Form 1116, the tax software doesn't yet know your state taxable income, and thus cannot properly adjust state income tax. TurboTax and TaxAct both prorate the deduction as if the state tax were not directly connected to either class of income; this would be mostly correct if the taxable income for both were the same, but still might be incorrect if some of the state tax deduction for 2022 is a payment of tax for 2021.
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Re: Oy vey…Form 1116?

Post by cchrissyy »

posting to follow. i remember fighting with the software last year on this topic but the details are foggy.
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Re: Oy vey…Form 1116?

Post by yosemite_mountain »

Makefile wrote: Sat Feb 04, 2023 5:15 pm
To better understand 1116 you have to think in reverse of normal terms. The form is trying to make sure you don't get credited back more foreign tax than the US tax you paid on the same income.
Did you mean "The form is trying to make sure you don't get credited back more foreign tax than the US tax you paid on the foreign income"?

I am using HR block premium (online) and the tax software calculates a foreign tax credit of zero. I don't understand why my foreign tax credit is 0.

For 2022 I held an international stock fund at Vanguard. The stocks in the international fund earned $5k in dividends, and foreign tax withheld was $400 of those dividends.

My effective federal tax rate is 24% and my marginal federal tax rate is 35%.
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Re: Oy vey…Form 1116?

Post by nalor511 »

yosemite_mountain wrote: Wed Mar 15, 2023 1:30 am
Makefile wrote: Sat Feb 04, 2023 5:15 pm
To better understand 1116 you have to think in reverse of normal terms. The form is trying to make sure you don't get credited back more foreign tax than the US tax you paid on the same income.
Did you mean "The form is trying to make sure you don't get credited back more foreign tax than the US tax you paid on the foreign income"?

I am using HR block premium (online) and the tax software calculates a foreign tax credit of zero. I don't understand why my foreign tax credit is 0.

For 2022 I held an international stock fund at Vanguard. The stocks in the international fund earned $5k in dividends, and foreign tax withheld was $400 of those dividends.

My effective federal tax rate is 24% and my marginal federal tax rate is 35%.
You haven't provided enough info to know. Probably you messed up 1116.
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Re: Oy vey…Form 1116?

Post by Makefile »

yosemite_mountain wrote: Wed Mar 15, 2023 1:30 am
Makefile wrote: Sat Feb 04, 2023 5:15 pm
To better understand 1116 you have to think in reverse of normal terms. The form is trying to make sure you don't get credited back more foreign tax than the US tax you paid on the same income.
Did you mean "The form is trying to make sure you don't get credited back more foreign tax than the US tax you paid on the foreign income"?

I am using HR block premium (online) and the tax software calculates a foreign tax credit of zero. I don't understand why my foreign tax credit is 0.

For 2022 I held an international stock fund at Vanguard. The stocks in the international fund earned $5k in dividends, and foreign tax withheld was $400 of those dividends.

My effective federal tax rate is 24% and my marginal federal tax rate is 35%.
By same income I meant foreign income but as it's reported on Form 1116 which could include adjustments.

The only way you'll know why it's zero is to go into forms view and look at how it has filled out Form 1116. It's possible it's still blank, and is waiting for you to figure out what line 1a should be after adjusting for foreign qualified dividends, and is currently zero, making your foreign tax credit zero.

No matter what tax software you use I think you're going to have to fill out Form 1116 by hand to check, as it seems none of them handle it correctly if you are itemizing deductions and had to adjust your foreign source income for qualified dividends due to being in a 32% or higher tax bracket. In particular any non-zero amount on line 2 (or also line 3b by the way) of 1116 is an immediate paper filing if you're using H&R Block (desktop version, don't know about online). If you follow the directions on page 27 of Publication 514 (https://www.irs.gov/pub/irs-pdf/p514.pdf) you might have to make an entry on line 2 for your state income tax.
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Re: Oy vey…Form 1116?

Post by grabiner »

Makefile wrote: Wed Mar 15, 2023 7:12 pm No matter what tax software you use I think you're going to have to fill out Form 1116 by hand to check, as it seems none of them handle it correctly if you are itemizing deductions and had to adjust your foreign source income for qualified dividends due to being in a 32% or higher tax bracket. In particular any non-zero amount on line 2 (or also line 3b by the way) of 1116 is an immediate paper filing if you're using H&R Block (desktop version, don't know about online). If you follow the directions on page 27 of Publication 514 (https://www.irs.gov/pub/irs-pdf/p514.pdf) you might have to make an entry on line 2 for your state income tax.
And the state income tax is something that the tax software cannot get right, which forces you to use forms mode if you want to do it correctly. TurboTax still allowed me to e-file after I made my own entries on line 2 for state income tax, but I had to compute the numbers on my own.
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Re: Oy vey…Form 1116?

Post by Nyc10036 »

Thank you for the link!!!
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CrazyCatLady
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Re: Oy vey…Form 1116?

Post by CrazyCatLady »

Thanks everyone for their thoughts. It’s still confusing, but the link helped a lot! :sharebeer
cacophony
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Re: Oy vey…Form 1116?

Post by cacophony »

The link says:

"If you don’t qualify for the adjustment exception, good luck learning how to adjust from the Form 1116 instructions. You’re better off switching to TurboTax, which does the adjustment for you when you need it."

which isn't very helpful.

If you need to do the adjustment, a good summary can be found here: viewtopic.php?p=6596977#p6596977
Just note the correction I make a few posts below that one.
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CrazyCatLady
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Re: Oy vey…Form 1116?

Post by CrazyCatLady »

cacophony wrote: Wed Mar 15, 2023 10:44 pm The link says:

"If you don’t qualify for the adjustment exception, good luck learning how to adjust from the Form 1116 instructions. You’re better off switching to TurboTax, which does the adjustment for you when you need it."

which isn't very helpful.

If you need to do the adjustment, a good summary can be found here: viewtopic.php?p=6596977#p6596977
Just note the correction I make a few posts below that one.
I meant Iceport’s link that Nyc10036 quoted right above me. It walks you through how to enter the info using the H&R Block software :sharebeer
cacophony
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Re: Oy vey…Form 1116?

Post by cacophony »

CrazyCatLady wrote: Thu Mar 16, 2023 12:49 am
cacophony wrote: Wed Mar 15, 2023 10:44 pm The link says:

"If you don’t qualify for the adjustment exception, good luck learning how to adjust from the Form 1116 instructions. You’re better off switching to TurboTax, which does the adjustment for you when you need it."

which isn't very helpful.

If you need to do the adjustment, a good summary can be found here: viewtopic.php?p=6596977#p6596977
Just note the correction I make a few posts below that one.
I meant Iceport’s link that Nyc10036 quoted right above me. It walks you through how to enter the info using the H&R Block software :sharebeer
My quote is from that same link.
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Teetlebaum
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Re: Oy vey…Form 1116?

Post by Teetlebaum »

iceport wrote: Tue Feb 07, 2023 11:40 am
And I'm not alone in thinking the IRS really dropped the ball on this topic. Here's the Finance Buff's take on this:
The Finance Buff wrote:If you don’t qualify for the adjustment exception, good luck learning how to adjust from the Form 1116 instructions. You’re better off switching to TurboTax, which does the adjustment for you when you need it.
[emphasis added]

How to Enter 2022 Foreign Tax Credit Form 1116 in H&R Block
Thanks so much for the link. His instructions (updated for 2023 tax year) are easy to follow.
stan1
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Re: Oy vey…Form 1116?

Post by stan1 »

Form 1116 was very easy for me this year in Turbo Tax.

Read the interview prompts carefully, entered all data, and kept hitting next until everything was done. Don't skip back and forth between interview and forms. Click next and answer all interview questions.

Did not have to consult TFB's site this year at all.

After the major mess of 2021 where the tax software vendors and the IRS were in dispute over the data interface until March, later years of 2022 and now 2023 have gone very smoothly.
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iceport
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Re: Oy vey…Form 1116?

Post by iceport »

stan1 wrote: Sat Feb 10, 2024 2:07 pm Form 1116 was very easy for me this year in Turbo Tax.

Read the interview prompts carefully, entered all data, and kept hitting next until everything was done. Don't skip back and forth between interview and forms. Click next and answer all interview questions.

Did not have to consult TFB's site this year at all.

After the major mess of 2021 where the tax software vendors and the IRS were in dispute over the data interface until March, later years of 2022 and now 2023 have gone very smoothly.
That's encouraging, to be sure. I use H&R Block, and from what The Finance Buff says, Turbo Tax does a far better job of handling this particular form. But the challenge still remains for me whether I can confirm the results.

A few years ago my siblings and I were confronted with reporting the sale of business property using Form 4797 for a house our mom gave us many years earlier that we had rented out for seven years. That was probably my biggest tax reporting challenge so far, apart from Form 1116. After a lot of reading and with the help of the explanations and examples I found on some academic sites (concerning agricultural business property, primarily), I was able to figure out exactly how our reporting should look using Form 4797 before I ever even started an H&R Block interview. My work was then confirmed by the software, not the other way around.

That's how I prefer to use tax software: as a check on my own work, rather than relying primarily on the software and then trying to check its work.

However, I must admit that each year I seem to have to go back and forth between the (pretty pathetic) IRS guidance on Form 1116 and the tax software results to help piece the puzzle together. I think I made mistakes a few times, but the bottom line would not have changed and the IRS let it go, if they even found the errors (or cared). I spent quite a bit of time looking for external (read: comprehensible) guidance for Form 1116 on the web, but the search was unbelievably discouraging. There was practically *nothing* of any value whatsoever.

And that's where prd1982's Excel worksheet entries with documentation really helped out tremendously. I still don't know if that work is 100% correct, but it's consistent with the IRS publications as far as I can tell, and it seems to make some kind of sense.

So in the end, the 2023 foreign tax credit reporting was fairly easy for me, too. But it took 1) the excellent work of Harry Sit to tell me how to get H&R Block to elect to use the foreign qualified dividend adjustment exception; and 2) prd1982's work to explicitly show and document the computations, so I can run the numbers myself.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
stan1
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Re: Oy vey…Form 1116?

Post by stan1 »

iceport wrote: Sun Feb 11, 2024 12:58 pm That's how I prefer to use tax software: as a check on my own work, rather than relying primarily on the software and then trying to check its work.
To each their own, this year with our foreign tax credit of about $1100 after I completed all of the interview questions I opened up the Forms view in Turbo Tax to review what was there and to make sure there wasn't something obviously missing. I did not pull out a calculator or slide rule to verify math. That's the extent of my checking, I do not attempt to review IRS regulations and publications to verify taxes unless I need to and I will admit in some prior years I did for foreign tax credit. Not needed this year though for our situation because the data entry (such as countries = "RIC" was clear). We all get to make choices about how we spend our time. :sharebeer
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iceport
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Re: Oy vey…Form 1116?

Post by iceport »

stan1 wrote: Sun Feb 11, 2024 1:36 pm
iceport wrote: Sun Feb 11, 2024 12:58 pm That's how I prefer to use tax software: as a check on my own work, rather than relying primarily on the software and then trying to check its work.
To each their own, this year with our foreign tax credit of about $1100 after I completed all of the interview questions I opened up the Forms view in Turbo Tax to review what was there and to make sure there wasn't something obviously missing. I did not pull out a calculator or slide rule to verify math. That's the extent of my checking, I do not attempt to review IRS regulations and publications to verify taxes unless I need to and I will admit in some prior years I did for foreign tax credit. Not needed this year though for our situation because the data entry (such as countries = "RIC" was clear). We all get to make choices about how we spend our time. :sharebeer
Fair enough! I just can't stand the idea of submitting a tax return I can't understand. :| Unfortunately, with Form 1116, my level of understanding falls in a grey area, not black-and-white clarity.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
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Metsfan91
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Re: Oy vey…Form 1116?

Post by Metsfan91 »

CrazyCatLady wrote: Sat Feb 04, 2023 4:52 pm Oy vey…Form 1116?
What is "Oy vey"?
"Know what you own, and know why you own it." — Peter Lynch
Walkure
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Re: Oy vey…Form 1116?

Post by Walkure »

Metsfan91 wrote: Mon Feb 12, 2024 9:49 pm
CrazyCatLady wrote: Sat Feb 04, 2023 4:52 pm Oy vey…Form 1116?
What is "Oy vey"?
I would have thought that someone with the username Metsfan91 would be an expert in the art of performative exasperation :wink:
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Metsfan91
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Re: Oy vey…Form 1116?

Post by Metsfan91 »

Walkure wrote: Tue Feb 13, 2024 11:57 am
Metsfan91 wrote: Mon Feb 12, 2024 9:49 pm
CrazyCatLady wrote: Sat Feb 04, 2023 4:52 pm Oy vey…Form 1116?
What is "Oy vey"?
I would have thought that someone with the username Metsfan91 would be an expert in the art of performative exasperation :wink:
Ouch!
"Know what you own, and know why you own it." — Peter Lynch
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