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Entering Foreign Taxes paid and generating Form 1116 Foreign Tax Credit in ProConnect Tax

by Intuit•11• Updated 2 days ago

This article will help you enter foreign taxes paid (or withheld) to calculate the foreign tax credit on Schedule 3, Line 1.

If you are looking for how to enter K-1 foreign taxes on an individual return (Form 1040), see here.

Before you start

  • There are six methods for entering foreign taxes paid, depending on the type of income the taxes are associated with.
  • For ProConnect Tax to calculate the Credit for Foreign taxes paid, an entry in US Dollars must be made. Entries under the Foreign Currency section won't generate a credit.
  • ProConnect Tax can't convert foreign currency amounts to US dollars, so any currency conversion must be done outside the program.

Select a type of income below to view step-by-step instructions

Missing required entries will cause diagnostic ref 55350:

  • Form 1116 Reject: For electronic filing purposes, every Form 1116, Part II, Column L must have a "date paid or accrued" or "1099 Taxes" literal on row A, B, and C whenever applicable. Please review your input for all Forms 1116. Your Form 1116 input may also come under 1099-INT, 1099-DIV, 1116, Sch. C, Sch. F, and Passthrough K-1's input screen. (ref. #55350)

Follow the data entry instructions for each type of entry below to resolve the diagnostic:

  1. Go to the Input Return tab.
  2. On the left-side menu, select Credits.
  3. Click on Foreign Tax Credit (1116).
  4. Scroll down to the section Income from Sources Outside U.S.
  5. Enter the name of the country in Name of foreign country.
  6. Select General Category Income from the Category of income (Click on arrow to select from list) drop down menu.
  7. Scroll down to the Foreign Taxes Paid or Accrued section.
  8. Enter the withholding in Other foreign taxes under the U.S. Dollars subsection.

Additional Information:

  • The foreign income exclusion income will be applied to any foreign taxes entered in the Foreign Tax Credit (1116) screen and the appropriate foreign tax credit amount will be calculated and will flow to Form 1116.
  • Per the Foreign Earned Income Form 2555 instructions, "You cannot take a credit or deduction for foreign income taxes paid or accrued on income that is excluded under either of the exclusions. If all of your foreign earned income is excluded, you cannot claim a credit or deduction for the foreign taxes paid or accrued on that income." The program will not generate a Form 1116 credit if the income is excluded on Form 2555.
  1. Go to the Input Return tab.
  2. Select Credits from the left menu.
  3. Select Foreign Tax Credit (1116).
  4. Select the country from the Name of foreign country dropdown list.
  5. Select the Category of income from the dropdown menu.
  6. Select Income from the left menu.
  7. Select Interest Income (1099-INT, 1099-OID).
  8. Enter the Name of Payer.
  9. Enter the interest income in Banks S&L, etc.
  10. Select the Details button to expand the input area.
  11. Scroll down to the Foreign Account and Foreign Tax Credit section
  12. Complete the information under Foreign Tax Credit subsection:
    • Select the Name of foreign country (must be the same as selected in step 4).
    • Select the Category of income (must be the same as selected in step 5).
    • Enter the Percentage foreign (.xxxx) or amount, if different if applicable.
    • Enter the Foreign income tax withheld (US dollars).
    • Check the box Foreign taxes accrued if applicable.
    • Enter the Date paid or accrued.
  1. Go to the Input Return tab.
  2. Select Credits from the left menu.
  3. Select Foreign Tax Credit (1116).
  4. Select the country from the Name of foreign country dropdown list.
  5. Select Category of income from the dropdown menu.
  6. Select Income from the left menu.
  7. Select Dividend Income (1099-DIV).
  8. Enter the Name of Payer.
  9. Enter the dividend income in Total Ordinary Dividends.
  10. Enter any qualified dividends in Qualified dividends.
  11. Enter any capital gains in Capital Gain Distributions.
  12. Click the Details button to expand the input area.
  13. Scroll down to the Foreign Tax Credit section and complete the information there:
    • Select the Name of foreign country (must be the same as selected in step 4).
    • Select the Category of income (must be the same as selected in step 5).
    • Enter the Percentage foreign (.xxxx) or amount, if different if applicable.
    • Enter the Foreign income tax withheld (US dollars).
    • Check the box Foreign taxes accrued if applicable.
    • Enter the Date paid or accrued.
  1. Go to the Input Return tab.
  2. Select Credits from the left menu.
  3. Select Foreign Tax Credit (1116).
  4. Select the country from the Name of foreign country dropdown list.
  5. Select the Category of income from the dropdown menu.
  6. On the left-side menu, select Income.
  7. Select Partnership Info (1065 K-1).
  8. Select Line 16 - Foreign Transactions from the left-side menu.
  9. Select inside on the Foreign tax withheld field.
  10. Select the plus sign (+) button to open the detail field.
    • Select the Form 1116 Name or Number. This should match the country you selected on the 1116 screen in step 4.
    • Enter the Partner's foreign gross income.
    • Enter the Foreign tax withheld (US Dollars).
    • Enter the Date paid or accrued.
    • Select the Type of income withheld on.
  11. Select OK to return to the input screen.
  1. Go to the Input Return tab.
  2. On the left-side menu, select Credits.
  3. Select Foreign Tax Credit (1116).
  4. Select the country from the Name of foreign country dropdown list.
  5. Select the Category of income from the dropdown menu.
  6. On the left-side menu, select Income.
  7. Select S-Corp Info (1120S K-1).
  8. Select Line 14 - Foreign Transactions from the left-side menu.
  9. Select inside on the Foreign tax withheld field.
  10. Select the plus sign (+) button to open the detail field.
    • Select the Form 1116 Name or Number. This should match the country you selected on the 1116 screen in step 4.
    • Enter the Shareholder foreign gross income.
    • Enter the Foreign tax withheld (US Dollars).
    • Enter the Date paid or accrued.
    • Select the Type of income withheld on.
  11. Select OK to return to the input screen.
  1. Go to the Input Return tab.
  2. On the left-side menu, select Credits.
  3. Select Foreign Tax Credit (1116).
  4. Select the country from the Name of foreign country dropdown list.
  5. Select the Category of income from the dropdown menu.
  6. On the left-side menu, select Income.
  7. Select Estate or Trust info (1041 K-1).
  8. Select Foreign Transactions from the left-side menu.
  9. Select inside on the Foreign tax withheld field.
  10. Select the plus sign (+) button to open the detail field.
    • Select the Form 1116 Name or Number. This should match the country you selected on the 1116 screen in step 4.
    • Enter the Partners foreign gross income.
    • Enter the Foreign tax withheld (US Dollars).
    • Enter the Date paid or accrued.
    • Select the Type of income withheld on.
  11. Select OK to return to the input screen.
  1. Go to the Input Return tab.
  2. On the left-side menu, select Credits.
  3. Select Foreign Tax Credit (1116).
  4. Select the country from the Name of foreign country dropdown list.
  5. Select the Category of income from the dropdown menu.
  6. Scroll down to the Foreign Taxes Paid or Accrued section.
  7. Enter the Date paid or accrued.
  8. Locate the US Dollars subsection.
  9. Enter the amount of foreign taxes in Other foreign taxes.
  10. On the left-side menu, select Income.
  11. Select Business Income (Sch C).
  12. Select Foreign Income Information.
  13. Select the Form 1116. This should match the country you selected on the 1116 screen in step 4.
  14. Enter the Percentage foreign if not 100%, if applicable. If left blank, the program assumes 100% of the income in this activity is foreign.
  1. Go to the Input Return tab.
  2. On the left-side menu, select Credits.
  3. Click on Foreign Tax Credit (1116).
  4. Select the country from the Name of foreign country drop-down list.
  5. Select the Category of income from the drop-down menu.
  6. Scroll down to the Gross Income Within Country section.
  7. Locate the Other Foreign Source Income subsection.
  8. Enter the income in Income (Click on button to expand).
    • Note: This income will only affect Form 1116. Income entered here will not duplicate amounts on the Schedule E.
  9. Scroll down to the Foreign Taxes Paid or Accrued section.
  10. Enter the Date paid or accrued.
  11. Scroll down to the U.S. Dollars subsection.
  12. Enter the foreign taxes paid or withheld in Other foreign taxes.
  1. Go to the Input Return tab.
  2. On the left-side menu, select Credits.
  3. Select Foreign Tax Credit (1116).
  4. Select the country from the Name of foreign country dropdown list.
  5. Select the Category of income from the dropdown menu.
  6. Scroll down to the Gross Income Within Country section.
  7. Locate the Other Foreign Source Income subsection.
  8. Enter the income in Income (Click on button to expand).
  9. Scroll down to the Foreign Taxes Paid or Accrued section.
  10. Locate the US Dollars subsection.
  11. Enter the foreign taxes paid or withheld in Other foreign taxes.

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