Form 1116

[Christian]

A new client came in this year. He had two mutual funds which withheld some $650.00 in foreign taxes. I have no familiarity with Form 1116 having prepared one in many years. I called him and explained he would need to carry his info to someone else explaining my concern that I could not properly prepare the Form 1116. To my surprise he said just to forget it and not use it. As this form attempts to get some or all of these foreign taxes applied against any federal tax he may owe I am concerned it may be mandatory to use it. On the other hand since it could reduce his federal tax obligation I doubt the IRS would complain if a client voluntarily does not want to use it. I would appreciate any thoughts on this as I personally do not see any problem leaving it off his return. I searched through ATX to see if any detailed line by line instructions existed in our tax program but could find none. After examination of the input fields I surmised it would take a several hour course to fully understand how it is applied and I have no such time available.

[michaelmars]

I would do this form and consider it a learning experience.  Software got much better in flowing the credits from 1099-Div statements.  I don't use ATX anymore so can't help with input but you should just have to enter counrty or I always use various and type of income. In this case passive, and everything should flow.  Other option is to enter it on sch A as an itemized deduction if taxpayer receives any benefit from that.  But honestly, 1116 is only a pain in the but when its from earned income or K-1

[Christian]

I entered the data and it populated the form but not the Form 1116 Alternative Tax version. When the foreign tax amounts are below $300 for singles and $600 for marrieds ATX posts them to the foreign credit line on the 1040. But his amounts come to $650 so no luck. The last thing I want to do is send them the form not correctly prepared.

[BulldogTom]

ATX does not make the form intuitive.   The concept is pretty straight forward, the income was double taxed.   The US will grant a credit for the taxes paid to the other country, but only to the extent the taxpayer pays taxes on that money in the US.   That is what the form is trying to do.  There are more nuances to what the form does, but if you follow through the logic, it is pretty straightforward.

Tom
Longview, TX

[Max W]

Just enter the max amount below 1116 threshhold - $600.   If you were to use the 1116, wouldn't you charge something for that?  Maybe $50.

[Abby Normal]

ATX largely automates the 1116. If the taxes are on long-term capital gains, there are entries you need to make on a worksheet, but if it's just dividends, then ATX should get it right.

[Abby Normal]

2 minutes ago, Max W said:

Just enter the max amount below 1116 threshhold - $600.   If you were to use the 1116, wouldn't you charge something for that?  Maybe $50.

The 600/300 rule is just for not including the 1116. You still have to prepare the 1116 to do the calculations, then check a box to say you're just using the 1116 for the calculations.

[Pacun]

wrong post

 

[TexTaxToo]

On 2/17/2023 at 4:26 PM, Max W said:

Just enter the max amount below 1116 threshhold - $600. 

That's not allowed.  If the foreign tax withheld is only slightly over $600, it's entirely possible that the credit allowed this year will be less than $600, with the excess needing to be carried back or forward.