Foreign Tax Credit - Changes to Form 1116 for 2021

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
User avatar
Topic Author
Electron
Posts: 2658
Joined: Sat Mar 10, 2007 7:46 pm

Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Electron »

There appears to be a change in Line 10 for 2021 on IRS Form 1116.

Previously, Line 10 was labeled as follows: Line 10 - Carryback or carryover (attach detailed computation).

The 2021 version of Form 1116 is labeled as follows: Line 10 - Enter the sum of any carryover of foreign taxes (from Schedule B, line 3, column (xiv)) plus any carrybacks to the current tax year.

An Internet search indicates that there is a new schedule with the name Schedule B (Form 1116).

If anyone has any information on these changes please let us know.
Enjoying the Outdoors
talzara
Posts: 4745
Joined: Thu Feb 12, 2009 6:40 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by talzara »

Electron wrote: Thu Jan 06, 2022 3:35 pm An Internet search indicates that there is a new schedule with the name Schedule B (Form 1116).

If anyone has any information on these changes please let us know.
Here is the draft Form 1116 Schedule B, Foreign Tax Carryover Reconciliation Schedule: https://www.irs.gov/pub/irs-dft/f1116sb--dft.pdf

The line 10 carryover statement has always been a problem for e-filing. TurboTax and TaxAct used different formats for the statement, so the IRS could not process them automatically. TaxHawk and TaxSlayer had the taxpayer type in a statement, so it was even more of a mess. H&R Block wouldn't e-file a statement at all, so you had to file on paper.

The new Schedule B forces all of the tax programs to use the same format, so the processing can now be automated. It also forces tax programs to add Schedule B if they claim to support form 1116. Any tax program that puts a number on line 10 will fail validation without Schedule B.
nalor511
Posts: 5058
Joined: Mon Jul 27, 2015 1:00 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by nalor511 »

This is wonderful news :sharebeer
Random Poster
Posts: 3314
Joined: Wed Feb 03, 2010 9:17 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Random Poster »

talzara wrote: Thu Jan 06, 2022 4:07 pm
Electron wrote: Thu Jan 06, 2022 3:35 pm An Internet search indicates that there is a new schedule with the name Schedule B (Form 1116).

If anyone has any information on these changes please let us know.
Here is the draft Form 1116 Schedule B, Foreign Tax Carryover Reconciliation Schedule: https://www.irs.gov/pub/irs-dft/f1116sb--dft.pdf
Hmmm.

On the IRS forms and publications by mail website, there is no Schedule B for Form 1116 to be ordered. Just the basic Form 1116, the instructions, and a Schedule H (form 965) for disallowance of foreign tax credit and amounts reported on Forms 1116 and 1118.
Most experiences are better imagined.
nalor511
Posts: 5058
Joined: Mon Jul 27, 2015 1:00 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by nalor511 »

Random Poster wrote: Thu Jan 06, 2022 4:20 pm
talzara wrote: Thu Jan 06, 2022 4:07 pm
Electron wrote: Thu Jan 06, 2022 3:35 pm An Internet search indicates that there is a new schedule with the name Schedule B (Form 1116).

If anyone has any information on these changes please let us know.
Here is the draft Form 1116 Schedule B, Foreign Tax Carryover Reconciliation Schedule: https://www.irs.gov/pub/irs-dft/f1116sb--dft.pdf
Hmmm.

On the IRS forms and publications by mail website, there is no Schedule B for Form 1116 to be ordered. Just the basic Form 1116, the instructions, and a Schedule H (form 965) for disallowance of foreign tax credit and amounts reported on Forms 1116 and 1118.
TurboTax says ready from IRS by Feb 17, 2022
User avatar
Topic Author
Electron
Posts: 2658
Joined: Sat Mar 10, 2007 7:46 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Electron »

Thanks all for the help and replies. The change looks like great news for online filing.

There will be another schedule to include for those sending in paper returns, but it should simplify the detailed computation that we had to include in previous years.

That could be quite a bit of work and you had to come up with your own method in documenting up to ten years worth of information.
Enjoying the Outdoors
talzara
Posts: 4745
Joined: Thu Feb 12, 2009 6:40 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by talzara »

nalor511 wrote: Thu Jan 06, 2022 4:21 pm TurboTax says ready from IRS by Feb 17, 2022
That's when Intuit is planning to add the updated form to TurboTax, but it should be available from the IRS a month earlier. H&R Block is planning to add the updated form on January 20, 2022.
Form 1116, Foreign Tax Credit 02/17/2022

https://care-cdn.prodsupportsite.a.intu ... idual.html
Form 1116: Computation of Foreign Tax Credit Available 1/20/2022

https://www.hrblock.com/tax-software/up ... lable.html
User avatar
Dale_G
Posts: 3466
Joined: Tue Feb 20, 2007 4:43 pm
Location: Central Florida - on the grown up side of 85

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Dale_G »

I sure hope it is fixed. I do taxes for a son who works overseas and over the past few years I have grown to hate Form 1116. TurboTax was most unhelpful when the efile was rejected over and over. Something like, "There was a problem with Form 1116, We'll help you fix it". Not. :twisted: :twisted: :twisted:

They could have had a pop-up saying, "Hey Buster if you entered anything on line 10 the IRS will reject your efile. Don't waste any more time, file a paper return". Would have saved me at least 100 hours of frustration.

Grrrr.... Dale
Volatility is my friend
talzara
Posts: 4745
Joined: Thu Feb 12, 2009 6:40 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by talzara »

Dale_G wrote: Sat Jan 08, 2022 11:27 pm I sure hope it is fixed. I do taxes for a son who works overseas and over the past few years I have grown to hate Form 1116. TurboTax was most unhelpful when the efile was rejected over and over. Something like, "There was a problem with Form 1116, We'll help you fix it". Not. :twisted: :twisted: :twisted:

They could have had a pop-up saying, "Hey Buster if you entered anything on line 10 the IRS will reject your efile. Don't waste any more time, file a paper return". Would have saved me at least 100 hours of frustration.
The IRS did not reject e-files with a carryover statement from TurboTax.

You probably ran into one of the other bugs in TurboTax. There were so many bugs on Form 1116 in TurboTax 2020 that there was a 5-page thread: viewtopic.php?t=340553

Intuit is good at dark patterns, marketing, and lobbying. Intuit is bad at software engineering, and Form 1116 is one example.
User avatar
Topic Author
Electron
Posts: 2658
Joined: Sat Mar 10, 2007 7:46 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Electron »

The draft instructions for the new schedule are also available.

https://www.irs.gov/pub/irs-dft/i1116sb--dft.pdf

Take note of the Worksheet that provides the data for Line 1 of the new Schedule B (Form 1116).
Enjoying the Outdoors
talzara
Posts: 4745
Joined: Thu Feb 12, 2009 6:40 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by talzara »

H&R Block has decided not to implement Form 1116 Schedule B this year.

H&R Block 2021 was updated today with the changes to Form 1116. However, the carryover screen tells you to download Schedule B from the IRS website, fill it out yourself, and file on paper:
If you're claiming a carryback or carryover, you can't e-file.

Go to www.irs.gov and download a copy of Schedule B (Form 1116) Foreign Tax Carryover Reconciliation Schedule. Complete the form and enter the sum of any carryover of foreign taxes from Schedule B (Form 1116) Foreign Tax Carryover Reconciliation Schedule, line 3, column (xiv)) plus any carrybacks to the current tax year.

Attach a copy of Form 1116 Sch B to your paper-filed return. To learn more, see the Form 1116 instructions for Part III - Figuring the Credit.
RubyTuesday
Posts: 2241
Joined: Fri Oct 19, 2012 11:24 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by RubyTuesday »

talzara wrote: Thu Jan 20, 2022 8:01 pm H&R Block has decided not to implement Form 1116 Schedule B this year.

H&R Block 2021 was updated today with the changes to Form 1116. However, the carryover screen tells you to download Schedule B from the IRS website, fill it out yourself, and file on paper:
If you're claiming a carryback or carryover, you can't e-file.

Go to www.irs.gov and download a copy of Schedule B (Form 1116) Foreign Tax Carryover Reconciliation Schedule. Complete the form and enter the sum of any carryover of foreign taxes from Schedule B (Form 1116) Foreign Tax Carryover Reconciliation Schedule, line 3, column (xiv)) plus any carrybacks to the current tax year.

Attach a copy of Form 1116 Sch B to your paper-filed return. To learn more, see the Form 1116 instructions for Part III - Figuring the Credit.
That’s really a load of bull. :annoyed
“Doing nothing is better than being busy doing nothing.” – Lao Tzu
yobery
Posts: 446
Joined: Thu Jan 20, 2022 11:27 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by yobery »

Whaaaaat? Come on HR Block.
prd1982
Posts: 1786
Joined: Sun Jan 08, 2017 3:43 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by prd1982 »

talzara wrote: Thu Jan 20, 2022 8:01 pm H&R Block has decided not to implement Form 1116 Schedule B this year.

H&R Block 2021 was updated today with the changes to Form 1116. However, the carryover screen tells you to download Schedule B from the IRS website, fill it out yourself, and file on paper:
Talzara, I looked at my H&R Block Deluxe program, and it shows that the 1/20 update has moved to 1/25. The last update was 1/4. If I go to the Foreign Tax interview, it says the interview is not complete. The 1116 form also shows that it is not final. Does your form show final?
talzara
Posts: 4745
Joined: Thu Feb 12, 2009 6:40 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by talzara »

prd1982 wrote: Fri Jan 21, 2022 6:56 am Talzara, I looked at my H&R Block Deluxe program, and it shows that the 1/20 update has moved to 1/25. The last update was 1/4. If I go to the Foreign Tax interview, it says the interview is not complete. The 1116 form also shows that it is not final. Does your form show final?
It won't be available on January 25, either. Forms Central lists the form as "Final expected 2/3/22."

Form 1116 has not been finalized, but it has already been updated with the changes for 2021. The form used to say Attach statement, and now it says Schedule B. The interview also used to say Attach statement, and now it also says Schedule B.

When H&R Block tells you to go to the IRS website, download a form, and fill it out yourself, it means they've decided not to support that tax situation. This is what the software does for distributions from inherited IRAs with basis:
  • Download and print out a copy of Form 8606: Nondeductible IRAs and its instructions form from the IRS web site at www.irs.gov. This copy will be for your inherited IRA. It is separate from any copy that you may have in the program relating to your own, non-inherited IRA's.
  • Manually complete the Form 8606 that you printed out to determine the taxable and nontaxable portion of the distribution from the inherited IRA.
  • Enter the taxable amount that you calculated on the Form 8606 for the inherited IRA on this screen.
  • Include the Form 8606 that you completed for the inherited IRA with your return. You will need to file your return on paper. You cannot e-file.
Of course, they can change their mind about the carryover schedule. However, inherited IRAs with basis have been unsupported for years.
User avatar
Topic Author
Electron
Posts: 2658
Joined: Sat Mar 10, 2007 7:46 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Electron »

Form 1116 and Schedule B (Form 1116) are now available on the IRS website.

www.irs.gov/formspubs/
Enjoying the Outdoors
Random Poster
Posts: 3314
Joined: Wed Feb 03, 2010 9:17 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Random Poster »

Electron wrote: Fri Jan 21, 2022 3:32 pm Form 1116 and Schedule B (Form 1116) are now available on the IRS website.

www.irs.gov/formspubs/
Yes, but Schedule B doesn’t appear on the IRS’ Forms and Publications by Mail website yet.

I wonder if the Schedule will be included with Form 1116 if you just order the latter.
Most experiences are better imagined.
Thesaints
Posts: 5108
Joined: Tue Jun 20, 2017 12:25 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Thesaints »

The silver lining in Vanguard not reporting foreign tax paid on their total world fund. We have been below $600 ever since…
User avatar
Topic Author
Electron
Posts: 2658
Joined: Sat Mar 10, 2007 7:46 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Electron »

Random Poster wrote: Fri Jan 21, 2022 4:33 pm Yes, but Schedule B doesn’t appear on the IRS’ Forms and Publications by Mail website yet.

I wonder if the Schedule will be included with Form 1116 if you just order the latter.
I'd be surprised if an order for Form 1116 included Schedule B (Form 1116). A search on 1116 on the IRS forms site produces 19 different results. There are a number of different forms and schedules related to Form 1116.

It may take a little time for printed versions to become available.

I'm now looking in detail at Schedule B and the Worksheet in the instructions. It may take some effort to find and enter all the numbers.
Enjoying the Outdoors
Random Poster
Posts: 3314
Joined: Wed Feb 03, 2010 9:17 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Random Poster »

Electron wrote: Sat Jan 22, 2022 12:39 pm
I'm now looking in detail at Schedule B and the Worksheet in the instructions. It may take some effort to find and enter all the numbers.
Maybe I’m missing something, but it looks to me like you just transfer over the numbers you used/included on your carryover and carry-forward statements that were attached to your previous tax return.
Most experiences are better imagined.
User avatar
Topic Author
Electron
Posts: 2658
Joined: Sat Mar 10, 2007 7:46 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Electron »

Random Poster wrote: Sat Jan 22, 2022 6:07 pm Maybe I’m missing something, but it looks to me like you just transfer over the numbers you used/included on your carryover and carry-forward statements that were attached to your previous tax return.
You are correct. It should be relatively easy if you already have the numbers. The only other task is understanding the Worksheet and Schedule B after reading the instructions.

Yesterday I added the Worksheet and Schedule B to my tax spreadsheet. It took a little time to understand the instructions and overall method.

I will finally use up all remaining foreign tax credit carryovers in 2021 that go back to 2011 and 2012.

With the 10 year limitation it looks like I just made it. I will likely not have any foreign tax credit carryovers going forward as a result of RMDs increasing my gross income. It doesn't look like I will need Schedule B after this year. :happy
Enjoying the Outdoors
talzara
Posts: 4745
Joined: Thu Feb 12, 2009 6:40 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by talzara »

Free File Fillable Forms does not have Form 1116 Schedule B, either. Since Intuit has quit the Free File Alliance, FFFF 2021 is a branded version of OLT.

It's not working out as we expected. Instead of implementing Schedule B, many tax software companies are leaving out the schedule and having their users file on paper.

It looks like none of the MeF Assurance Testing System scenarios includes Schedule B or even Form 1116, so companies can still pass assurance testing without it: https://www.irs.gov/e-file-providers/ta ... nformation
User avatar
Topic Author
Electron
Posts: 2658
Joined: Sat Mar 10, 2007 7:46 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Electron »

talzara wrote: Tue Jan 25, 2022 5:44 pmIt's not working out as we expected. Instead of implementing Schedule B, many tax software companies are leaving out the schedule and having their users file on paper.
That is a disappointment. If time is a factor maybe they will implement Schedule B (Form 1116) at a later date.

I currently hold three mutual funds that provide a foreign tax credit and the reporting is slightly different for each fund. Harbor International even shows the foreign tax paid on the December statement. Information to calculate the foreign income is provided at a later date.

I held Royal Dutch Shell stock (ADR) for a number of years and 15% was always withheld from the quarterly dividend for the foreign tax. In that case it was easy to determine both the foreign tax credit and foreign income.
Enjoying the Outdoors
Random Poster
Posts: 3314
Joined: Wed Feb 03, 2010 9:17 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Random Poster »

It looks like Vanguard, once again, isn’t providing a Foreign Tax Paid statement to its mutual fund platform clients/owners.

Anyone have a link (or resource) to Vanguard’s 2021 Foreign Tax Worksheet so that one can accurately complete Form 1116?

ETA: Nevermind, this might be the needed link: https://advisors.vanguard.com/iwe/pdf/t ... 012022.pdf I’ll need to do some basic confirmation checks though to be sure.
Most experiences are better imagined.
rule of law guy
Posts: 525
Joined: Mon Jun 07, 2021 9:35 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by rule of law guy »

question for this thread, from a Form 1116 hater: we get a partnership K-1 that allocates a foreign tax paid on our behalf of $X. no backup or worksheet, just a statement that the partnership paid foreign taxes and your share is $X.

how can I best put this on my 1040 without getting into the BS of Form 1116? (Use turboTax)
Never wrong, unless my wife tells me that I am.
User avatar
Artsdoctor
Posts: 6063
Joined: Thu Jun 28, 2012 3:09 pm
Location: Los Angeles, CA

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Artsdoctor »

Random Poster wrote: Wed Jan 26, 2022 3:01 pm It looks like Vanguard, once again, isn’t providing a Foreign Tax Paid statement to its mutual fund platform clients/owners.

Anyone have a link (or resource) to Vanguard’s 2021 Foreign Tax Worksheet so that one can accurately complete Form 1116?

ETA: Nevermind, this might be the needed link: https://advisors.vanguard.com/iwe/pdf/t ... 012022.pdf I’ll need to do some basic confirmation checks though to be sure.
Are you sure it's not on your 1099-DIV? This year, Vanguard separates out the qualified dividends along with the foreign tax paid. I think that the information is all there but I haven't started working on 1116 yet.
Random Poster
Posts: 3314
Joined: Wed Feb 03, 2010 9:17 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Random Poster »

Artsdoctor wrote: Wed Jan 26, 2022 5:59 pm
Random Poster wrote: Wed Jan 26, 2022 3:01 pm It looks like Vanguard, once again, isn’t providing a Foreign Tax Paid statement to its mutual fund platform clients/owners.

Anyone have a link (or resource) to Vanguard’s 2021 Foreign Tax Worksheet so that one can accurately complete Form 1116?

ETA: Nevermind, this might be the needed link: https://advisors.vanguard.com/iwe/pdf/t ... 012022.pdf I’ll need to do some basic confirmation checks though to be sure.
Are you sure it's not on your 1099-DIV? This year, Vanguard separates out the qualified dividends along with the foreign tax paid. I think that the information is all there but I haven't started working on 1116 yet.
My 1099 only reports ordinary dividends, qualified dividends, and foreign tax paid amounts.

It doesn’t report what the percentage of foreign source income is, or what the QDI-eligible income is, both of which I think you need to fill out Form 1116 correctly if you don’t qualify for the “adjustment exception.”
Most experiences are better imagined.
Chip
Posts: 3994
Joined: Wed Feb 21, 2007 3:57 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Chip »

rule of law guy wrote: Wed Jan 26, 2022 5:48 pm question for this thread, from a Form 1116 hater: we get a partnership K-1 that allocates a foreign tax paid on our behalf of $X. no backup or worksheet, just a statement that the partnership paid foreign taxes and your share is $X.

how can I best put this on my 1040 without getting into the BS of Form 1116? (Use turboTax)
If it's under the 300/600 limit there is normally a way to enter it directly on one of the 1040 schedules without involving F1116.
User avatar
Topic Author
Electron
Posts: 2658
Joined: Sat Mar 10, 2007 7:46 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Electron »

rule of law guy wrote: Wed Jan 26, 2022 5:48 pm We get a partnership K-1 that allocates a foreign tax paid on our behalf of $X. no backup or worksheet, just a statement that the partnership paid foreign taxes and your share is $X.
If your total foreign tax credit is over the $300/$600 limit, you may want to talk with a tax professional. I'd also suggest reviewing IRS Publication 514. It might be worth posting a new thread either here or in the Fairmark tax forum.

If your total foreign tax credit is under the limit, you may be able to enter the amount on Form 1040, Schedule 3, Line 1. See the paragraph "Exemption from foreign tax credit limit" in Publication 514.

Another option if you are over the limit and itemize deductions is to deduct the foreign taxes instead of using the credit.
Enjoying the Outdoors
quietseas
Posts: 901
Joined: Fri Dec 27, 2013 3:43 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by quietseas »

Random Poster wrote: Wed Jan 26, 2022 8:06 pm It doesn’t report what the percentage of foreign source income is, or what the QDI-eligible income is, both of which I think you need to fill out Form 1116 correctly if you don’t qualify for the “adjustment exception.”
My 2021 Vanguard 1099 (released today 1/27) does report foreign source % and foreign source qual % at least for Vanguard funds and ETFs. We don't hold non-Vanguard international funds in taxable accounts so I can't speak to how Vanguard brokerage reports it for other fund families. It is on page 6 of 8 of our 1099, page titled "Mutual Fund and UIT Supplemental Information".
Makefile
Posts: 2657
Joined: Fri Apr 22, 2016 11:03 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Makefile »

quietseas wrote: Thu Jan 27, 2022 2:57 pm
Random Poster wrote: Wed Jan 26, 2022 8:06 pm It doesn’t report what the percentage of foreign source income is, or what the QDI-eligible income is, both of which I think you need to fill out Form 1116 correctly if you don’t qualify for the “adjustment exception.”
My 2021 Vanguard 1099 (released today 1/27) does report foreign source % and foreign source qual % at least for Vanguard funds and ETFs. We don't hold non-Vanguard international funds in taxable accounts so I can't speak to how Vanguard brokerage reports it for other fund families. It is on page 6 of 8 of our 1099, page titled "Mutual Fund and UIT Supplemental Information".
Mine (1099-DIV) came Jan 16th, but I have the old-school mutual fund transfer agent account where it comes sooner. It is a barebones single page form with one line per fund. The only international-related information given is foreign tax paid. To determine total foreign income, and foreign source qualified dividends we have to look up the percentages on the Vanguard website and do the math ourselves. Prior to last year, Vanguard would also send another foreign income form that had those calculations already done. The enveloped did come with US government obligations information too on a separate sheet. Some of the stock funds have a pittance (0.01%) of US government obligations income this year and I don't remember that ever happening before.
quietseas
Posts: 901
Joined: Fri Dec 27, 2013 3:43 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by quietseas »

Makefile wrote: Thu Jan 27, 2022 3:03 pm
quietseas wrote: Thu Jan 27, 2022 2:57 pm
Random Poster wrote: Wed Jan 26, 2022 8:06 pm It doesn’t report what the percentage of foreign source income is, or what the QDI-eligible income is, both of which I think you need to fill out Form 1116 correctly if you don’t qualify for the “adjustment exception.”
My 2021 Vanguard 1099 (released today 1/27) does report foreign source % and foreign source qual % at least for Vanguard funds and ETFs. We don't hold non-Vanguard international funds in taxable accounts so I can't speak to how Vanguard brokerage reports it for other fund families. It is on page 6 of 8 of our 1099, page titled "Mutual Fund and UIT Supplemental Information".
Mine (1099-DIV) came Jan 16th, but I have the old-school mutual fund transfer agent account where it comes sooner. It is a barebones single page form with one line per fund. The only international-related information given is foreign tax paid. To determine total foreign income, and foreign source qualified dividends we have to look up the percentages on the Vanguard website and do the math ourselves. Prior to last year, Vanguard would also send another foreign income form that had those calculations already done. The enveloped did come with US government obligations information too on a separate sheet. Some of the stock funds have a pittance (0.01%) of US government obligations income this year and I don't remember that ever happening before.
I am describing a consolidated 1099 for a Vanguard brokerage account. I don't think its a surprise at this point that a brokerage 1099 might look different than a legacy account 1099. Vanguard has told us legacy accounts are not going to get some future capability upgrades. This might be such a case.
Makefile
Posts: 2657
Joined: Fri Apr 22, 2016 11:03 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Makefile »

quietseas wrote: Thu Jan 27, 2022 3:10 pm I am describing a consolidated 1099 for a Vanguard brokerage account. I don't think its a surprise at this point that a brokerage 1099 might look different than a legacy account 1099. Vanguard has told us legacy accounts are not going to get some future capability upgrades. This might be such a case.
Does the 1099-DIV look like the one on page 19 of this (which I found on Google Images): https://www.ubs.com/content/dam/static/ ... orting.pdf

I've had multiple brokerage companies produce 1099s in that exact looking format. So if yours looks like that, I'm thinking there must be some software offered to brokerage companies that generates that kind of form, and maybe Vanguard Brokerage switched to it rather than generating their own.
Random Poster
Posts: 3314
Joined: Wed Feb 03, 2010 9:17 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Random Poster »

quietseas wrote: Thu Jan 27, 2022 3:10 pm

I am describing a consolidated 1099 for a Vanguard brokerage account. I don't think its a surprise at this point that a brokerage 1099 might look different than a legacy account 1099. Vanguard has told us legacy accounts are not going to get some future capability upgrades. This might be such a case.
There was a long thread last year about Vanguard no longer providing a Foreign Tax Paid statement (which has the % of foreign income and QDI numbers on it) to those on the mutual fund platform.

I don’t really feel like hashing out the arguments again, but I will say that Vanguard failing to provide information that it used to provide and clearly has and still provides to others is not equivalent to a “capability upgrade.”

It is simply that Vanguard doesn’t respect or care for those on the mutual fund platform. Those on that platform pay the same expense fees as those on the brokerage, all things being equal (same funds, same number of shares, etc), but they are obviously getting less service for their money. I have some very choice words to say to Vanguard about that, but won’t do so here.

Back on point though, I’m surprised to see so few international funds have 100% foreign source income. Funds that were 100% in 2020 aren’t 100% in 2021, like FTSE-All World Ex-Us. Curious what the non-foreign holdings are/were in some of these funds….
Most experiences are better imagined.
Makefile
Posts: 2657
Joined: Fri Apr 22, 2016 11:03 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Makefile »

Random Poster wrote: Thu Jan 27, 2022 3:23 pm There was a long thread last year about Vanguard no longer providing a Foreign Tax Paid statement (which has the % of foreign income and QDI numbers on it) to those on the mutual fund platform.
At least we still get them a bit sooner than those with the brokerage middleman :D

I wonder if those holding Vanguard mutual funds in a non-Vanguard brokerage get the foreign income broken out like that, and if so has it always been that way or did they also have to dig up the information on the website.
dkarst
Posts: 58
Joined: Tue Dec 22, 2015 8:47 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by dkarst »

Random Poster wrote: Thu Jan 27, 2022 3:23 pm
quietseas wrote: Thu Jan 27, 2022 3:10 pm

I am describing a consolidated 1099 for a Vanguard brokerage account. I don't think its a surprise at this point that a brokerage 1099 might look different than a legacy account 1099. Vanguard has told us legacy accounts are not going to get some future capability upgrades. This might be such a case.
There was a long thread last year about Vanguard no longer providing a Foreign Tax Paid statement (which has the % of foreign income and QDI numbers on it) to those on the mutual fund platform.

I don’t really feel like hashing out the arguments again, but I will say that Vanguard failing to provide information that it used to provide and clearly has and still provides to others is not equivalent to a “capability upgrade.”

It is simply that Vanguard doesn’t respect or care for those on the mutual fund platform. Those on that platform pay the same expense fees as those on the brokerage, all things being equal (same funds, same number of shares, etc), but they are obviously getting less service for their money. I have some very choice words to say to Vanguard about that, but won’t do so here.

Back on point though, I’m surprised to see so few international funds have 100% foreign source income. Funds that were 100% in 2020 aren’t 100% in 2021, like FTSE-All World Ex-Us. Curious what the non-foreign holdings are/were in some of these funds….
You're correct on a long and painful thread last year... here are some snippets...
viewtopic.php?f=2&t=339664

Now I didn't just bring this up to revisit last year's pain... one of the points from last year is the "explanation sheet" VG provided had you start out with a number NOT on your 1099. It appears VG listened? and now the updated sheet starts out differently.

The sheet is available here also.. https://investor.vanguard.com/investor- ... nformation

I am on old mutual fund platform and need the foreign source income to complete form 1116 so am stuck until TTax gets it completed.
User avatar
Topic Author
Electron
Posts: 2658
Joined: Sat Mar 10, 2007 7:46 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Electron »

Random Poster wrote: Thu Jan 27, 2022 3:23 pmBack on point though, I’m surprised to see so few international funds have 100% foreign source income. Funds that were 100% in 2020 aren’t 100% in 2021, like FTSE-All World Ex-Us.
I also was surprised to see the 90.93% figure for VFWAX. The Vanguard site shows foreign holdings at 99.5%.

My accounts were transitioned to the brokerage platform last year so I am getting separate tax forms for the mutual fund accounts and brokerage account. I used the 90.930382% figure in both cases to calculate foreign source income.

In the case of the brokerage account, I had to determine the amount that would have been in Box 1a of the 1099-DIV had the international fund been the only holding.
Enjoying the Outdoors
GeMoney
Posts: 353
Joined: Sun Jul 28, 2019 11:15 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by GeMoney »

It appears FREETAXUSA is also not supporting Schedule B for Form 1116. This is from their website:

FREETAXUSA doesn't currently support e-filing Form 1116, Schedule B to reconcile prior year foreign tax carryover with current year foreign tax carryover. If you need to do this, you'll need to print and mail your return
dkarst
Posts: 58
Joined: Tue Dec 22, 2015 8:47 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by dkarst »

I noticed this regarding on intuit the revised form 1116 .. does this mean no efile if you use carryover from previous year and you have to wait until 3/31 to print? Seems like a big issue if I'm correct. Sorry I couldn't fix formatting. Thanks in advance for help.


Form ------------------------------------------------------------------------ Print ---------- Efile
Form 1116 Sch B, Foreign Tax Carryover Reconciliation Schedule 03/31/2022 unsupported
dogperson
Posts: 71
Joined: Wed Feb 28, 2018 9:36 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by dogperson »

talzara wrote: Sat Jan 08, 2022 8:10 pm
nalor511 wrote: Thu Jan 06, 2022 4:21 pm TurboTax says ready from IRS by Feb 17, 2022
That's when Intuit is planning to add the updated form to TurboTax, but it should be available from the IRS a month earlier. H&R Block is planning to add the updated form on January 20, 2022.
As of yesterday, TurboTax has bumped it out a week and is saying they'll have the form by February 24. I hope they don't change their mind like H&R Block did. TurboTax isn't offering me the option to file on paper.

EDIT: wow, now TurboTax is saying I have lower tax liability with the deduction than the credit. TurboTax initially "checked" this and told me the credit was better, possibly because it asked before I'd entered all my deductions and I couldn't itemize yet. Or maybe it's incorrect now because the credit can't be applied correctly until they update Form 1116. I think I better wait for them to finish the form before I file.

I am seriously unimpressed with TurboTax code based on a bug I encountered on Schedule D. I guess the IRS doesn't regulate the quality of these products.
Thesaints
Posts: 5108
Joined: Tue Jun 20, 2017 12:25 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Thesaints »

quietseas wrote: Thu Jan 27, 2022 3:10 pm Vanguard has told us legacy accounts are not going to get some future capability upgrades.
It is more like they got a future capability downgrade, since the information had been provided until a couple of years ago.
talzara
Posts: 4745
Joined: Thu Feb 12, 2009 6:40 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by talzara »

dkarst wrote: Tue Feb 08, 2022 10:13 am I noticed this regarding on intuit the revised form 1116 .. does this mean no efile if you use carryover from previous year and you have to wait until 3/31 to print?
Yes, that's what it means.

So far, TurboTax, H&R Block, TaxHawk (FreeTaxUSA), and OLT (Free File Fillable Forms) have all decided not to implement e-filing of Form 1116 Schedule B for tax year 2021.

TaxAct hasn't released Form 1116 yet, and it doesn't mention Schedule B: https://www.taxact.com/forms/

The other programs are unlikely to implement Schedule B this late in the tax filing season.
dkarst
Posts: 58
Joined: Tue Dec 22, 2015 8:47 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by dkarst »

Hmmm... either I'm missing something or the form availability for Form 1116 Sch B, Foreign Tax Carryover Reconciliation Schedule has disappeared completely? Does this mean there is hope?
User avatar
dodecahedron
Posts: 6607
Joined: Tue Nov 12, 2013 11:28 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by dodecahedron »

A few years ago, I decided that "Life is too short to mess with Form 1116," and got rid of all the international in my taxable account (TLHing the lots with losses and donating the most appreciated shares to my DAF.) Rebalanced by buying international in my tax-advantaged accounts (using appropriately chosen alternative mutual funds to avoid wash sales, of course.)

Feeling confirmed in that decision by ongoing developments reported above.
anita bahth
Posts: 184
Joined: Tue Dec 14, 2021 3:33 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by anita bahth »

dodecahedron wrote: Wed Feb 09, 2022 7:47 am A few years ago, I decided that "Life is too short to mess with Form 1116," and got rid of all the international in my taxable account (TLHing the lots with losses and donating the most appreciated shares to my DAF.) Rebalanced by buying international in my tax-advantaged accounts (using appropriately chosen alternative mutual funds to avoid wash sales, of course.)

Feeling confirmed in that decision by ongoing developments reported above.
Hopefully these were tax-deferred accounts, and not Roths? otw you lose the foreign tax paid completely.
Makefile
Posts: 2657
Joined: Fri Apr 22, 2016 11:03 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Makefile »

anita bahth wrote: Sat Feb 12, 2022 9:27 pm
dodecahedron wrote: Wed Feb 09, 2022 7:47 am A few years ago, I decided that "Life is too short to mess with Form 1116," and got rid of all the international in my taxable account (TLHing the lots with losses and donating the most appreciated shares to my DAF.) Rebalanced by buying international in my tax-advantaged accounts (using appropriately chosen alternative mutual funds to avoid wash sales, of course.)

Feeling confirmed in that decision by ongoing developments reported above.
Hopefully these were tax-deferred accounts, and not Roths? otw you lose the foreign tax paid completely.
You "lose" the foreign tax credit no matter whether it's Traditional or Roth.

Remember that the idea of the foreign tax credit is if your US tax on the income was more than the foreign tax, you get credited back the foreign tax. In a Roth, the US tax is zero, so it's entirely appropriate not receive the credit.

In Traditional, the loss of the credit is no different than other kinds of income that lose their special character when held inside an IRA, like capital gains and qualified dividends, US government interest, or tax-exempt interest.
yobery
Posts: 446
Joined: Thu Jan 20, 2022 11:27 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by yobery »

Makefile wrote: Sat Feb 12, 2022 9:33 pm
anita bahth wrote: Sat Feb 12, 2022 9:27 pm
dodecahedron wrote: Wed Feb 09, 2022 7:47 am A few years ago, I decided that "Life is too short to mess with Form 1116," and got rid of all the international in my taxable account (TLHing the lots with losses and donating the most appreciated shares to my DAF.) Rebalanced by buying international in my tax-advantaged accounts (using appropriately chosen alternative mutual funds to avoid wash sales, of course.)

Feeling confirmed in that decision by ongoing developments reported above.
Hopefully these were tax-deferred accounts, and not Roths? otw you lose the foreign tax paid completely.
You "lose" the foreign tax credit no matter whether it's Traditional or Roth.

Remember that the idea of the foreign tax credit is if your US tax on the income was more than the foreign tax, you get credited back the foreign tax. In a Roth, the US tax is zero, so it's entirely appropriate not receive the credit.

In Traditional, the loss of the credit is no different than other kinds of income that lose their special character when held inside an IRA, like capital gains and qualified dividends, US government interest, or tax-exempt interest.
Yeah but no matter how you logic it up, you still lose a credit that you'd get if it were in taxable, dollars that would still be in your pocket :)
User avatar
dodecahedron
Posts: 6607
Joined: Tue Nov 12, 2013 11:28 am

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by dodecahedron »

yobery wrote: Sat Feb 12, 2022 11:39 pm
Makefile wrote: Sat Feb 12, 2022 9:33 pm
anita bahth wrote: Sat Feb 12, 2022 9:27 pm
dodecahedron wrote: Wed Feb 09, 2022 7:47 am A few years ago, I decided that "Life is too short to mess with Form 1116," and got rid of all the international in my taxable account (TLHing the lots with losses and donating the most appreciated shares to my DAF.) Rebalanced by buying international in my tax-advantaged accounts (using appropriately chosen alternative mutual funds to avoid wash sales, of course.)

Feeling confirmed in that decision by ongoing developments reported above.
Hopefully these were tax-deferred accounts, and not Roths? otw you lose the foreign tax paid completely.
You "lose" the foreign tax credit no matter whether it's Traditional or Roth.

Remember that the idea of the foreign tax credit is if your US tax on the income was more than the foreign tax, you get credited back the foreign tax. In a Roth, the US tax is zero, so it's entirely appropriate not receive the credit.

In Traditional, the loss of the credit is no different than other kinds of income that lose their special character when held inside an IRA, like capital gains and qualified dividends, US government interest, or tax-exempt interest.
Yeah but no matter how you logic it up, you still lose a credit that you'd get if it were in taxable, dollars that would still be in your pocket :)
I keep my internationals in my Roth. Internationals throw off a lot of non-qualified dividends, which are extremely tax inefficient in taxable in my situation. Very high effective marginal tax rate due to SS Tax Torpedo. Foreign tax credit only mitigates but does not totally eliminate that inefficiency. Bottom line: more dollars in my pocket AND greater simplicity holding international in Roth.
anita bahth
Posts: 184
Joined: Tue Dec 14, 2021 3:33 pm

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by anita bahth »

dodecahedron wrote: Sun Feb 13, 2022 7:42 am
yobery wrote: Sat Feb 12, 2022 11:39 pm
Makefile wrote: Sat Feb 12, 2022 9:33 pm
anita bahth wrote: Sat Feb 12, 2022 9:27 pm Hopefully these were tax-deferred accounts, and not Roths? otw you lose the foreign tax paid completely.
You "lose" the foreign tax credit no matter whether it's Traditional or Roth.

Remember that the idea of the foreign tax credit is if your US tax on the income was more than the foreign tax, you get credited back the foreign tax. In a Roth, the US tax is zero, so it's entirely appropriate not receive the credit.

In Traditional, the loss of the credit is no different than other kinds of income that lose their special character when held inside an IRA, like capital gains and qualified dividends, US government interest, or tax-exempt interest.
Yeah but no matter how you logic it up, you still lose a credit that you'd get if it were in taxable, dollars that would still be in your pocket :)
I keep my internationals in my Roth. Internationals throw off a lot of non-qualified dividends, which are extremely tax inefficient in taxable in my situation. Very high effective marginal tax rate due to SS Tax Torpedo. Foreign tax credit only mitigates but does not totally eliminate that inefficiency. Bottom line: more dollars in my pocket AND greater simplicity holding international in Roth.
How much foreign taxes you can get back:
  1. put in taxable and take the credit: dollar for dollar, but filing paperwork can be complex
  2. put in taxable and take the deduction: dollar for <tax rate>, easier but need enough to itemize
  3. put in TIRA: dollar for <tax rate>, simple
  4. put in Roth: dollar for nothing, simple but loses the tax paid completely
(of course, there can be overriding reasons to still choose any one of these)
User avatar
Artsdoctor
Posts: 6063
Joined: Thu Jun 28, 2012 3:09 pm
Location: Los Angeles, CA

Re: Foreign Tax Credit - Changes to Form 1116 for 2021

Post by Artsdoctor »

I'm still not convinced that there's a correct answer to where international funds should be held. The foreign tax credit helps but AGI will not be affected by the FTC. Some people really have a significant marginal tax rate (like the social security tax torpedo described above) and I'm sure a few people will pay more in Medicare premiums just because of their international fund dividends. You might "get it back" in the form of a credit but the credit may not be high enough to cut out ahead in the end.
Post Reply