This article will help you enter foreign taxes paid (or withheld) to calculate the foreign tax credit on Schedule 3, line 48.
Before you start:
- In order for Lacerte to calculate the credit for foreign taxes paid, an entry under the U.S. Dollars section must be made.
- Entries under the Foreign Currency section will not generate a credit.
- Lacerte will not automatically convert any amounts under the Foreign Currency section, conversion will need to be done manually and entered in Lacerte.
Depending on the type of income, there are four methods to enter foreign tax credit information:
To calculate a credit for taxes paid to a foreign country on Form 1116 from foreign transactions reported on a Schedule K-1, click here.
To calculate a credit for taxes paid to a foreign country on Form 1116 from other income, like a 109...
- Go to Screen 35, Foreign Tax Credit (1116).
- Enter the Foreign Country in Name of foreign country (code 801).
- Select the Category of income (Ctrl+T) (code 2) from the drop-down menu:
- Passive Category Income
- Passive Category Income- High Taxed
- General Category Income
- Section 901(j) Income
- Certain Income Re-sourced by Treaty
- Lump-sum Distributions
- Scroll down to the Gross Income Within Country section.
- Enter the Foreign Income in, Income (Ctrl+E) (code 9) under the Other Foreign Source Income subsection.
- Scroll down to the Foreign Taxes Paid or Accrued section.
- Enter the withholding amount in, Other foreign taxes (code 25) under the U.S. Dollars subsection.
To calculate credit for taxes paid to a foreign country on Form 1116 from interest income:
- Go to Screen 35, Foreign Tax Credit (1116).
- Enter the Foreign Country in, Name of foreign country (code 801).
- Select the Category of income (Ctrl+T) (code 2) from the drop-down menu:
- Passive Category Income
- Passive Category Income- High Taxed
- General Category Income
- Section 901(j) Income
- Certain Income Re-sourced by Treaty
- Lump-sum Distributions
- Go to Screen 11, Interest Income.
- Enter the Name of Payer (code 800).
- Enter the Interest income in, Banks S&L, etc. (code 2).
- Scroll down to the Foreign Account and Foreign Tax Credit section.
- Complete the information under Foreign Tax Credit subsection.
- Select the Name of foreign country (needs to be the same as Step 2)
- Select the Category of income (Ctrl+T) (needs to be the same as Step 3)
- Enter the Percentage foreign (.xxxx) or amount, if different (if applicable)
- Enter the Foreign income tax withheld (U.S. dollars)
- Check the box, Foreign taxes accrued (code 32) (if applicable)
- Enter the Date paid or accrued (code 24)
To calculate credit for taxes paid to a foreign country on Form 1116 from dividend income:
- Go to Screen 35, Foreign Tax Credit (1116).
- Enter the Foreign Country in, Name of foreign country (code 801).
- Select the Category of income (Ctrl+T) (code 2) from the drop-down menu:
- Passive Category Income
- Passive Category Income- High Taxed
- General Category Income
- Section 901(j) Income
- Certain Income Re-sourced by Treaty
- Lump-sum Distributions
- Go to Screen 12, Dividend Income.
- Enter the Name of Payer (code 800).
- Enter the dividend income in, Total Ordinary Dividend (code 2).
- Enter any qualified dividends in, Qualified dividends (code 30).
- Enter any capital gains in, Capital Gain Distributions (code 3).
- Scroll down to the Foreign Tax Credit section.
- Select the Name of foreign country (needs to be the same as Step 2).
- Select the Category of income (Ctrl+T) (needs to be the same as Step 3).
- Enter the Percentage foreign (.xxxx) or amount, if different - Total Ordinary Dividend (if applicable).
- Enter the Percentage foreign (.xxxx) or amount, if different - Qualified Dividends (if applicable).
- Enter the Percentage foreign (.xxxx) or amount, if different - Capital Gain Distributions (if applicable).
- Enter the Foreign income tax withheld (U.S. dollars) (code 16).
- Check the box, Foreign taxes accrued (code 32) (if applicable).
- Enter the Date paid or accrued (code 24).
