Form 1116 requires extra effort, even with tax software. This year I'm using H&R Block, which asks me simple, friendly questions all the way through... and then suddenly introduces form 1116 and wishes me good luck! It provides some ideas for filling out the form, but you're require to fill in the form by hand, directly on the form. And that's not unique to H&R Block - the same was true with TaxSlayer.
Although I'm just filling in data about my ETFs with foreign holdings, form 1116 handles all forms of foreign income, so it's not as simple as entering data for a 1099-div. And Vanguard is less helpful, too: their "foreign tax" calculation states at the bottom that it only includes Vanguard funds, so I have to add up those totals by hand.
Here's my approach, in case it's helpful (or I need a reminder next year?):
1) Take my consolidated 1099, and "print to PDF" only those pages with entries in box 7 (foreign tax paid). The tax paid isn't enough by itself, since the IRS is going to ask about the income related to it. I add up all the values in box 7 to get my total foreign tax paid. It should match the summary on the first page of the 1099, which also has a box 7.
2) I might be wrong, but I assume the "dividends" are the "income" for purposes of form 1116. I take every entry with foreign tax paid, and add up all the ordinary dividends (box 1a). In my situation, I think I can avoid adding up "qualified dividends", but I tend to run the numbers on those just in case.
3) Time to attack form 1116. This year the form asks where I'm a resident, which I think is new from last year. It also asks where the money was invested, which is actually easier if I fill out the form by hand, since I can type "various" into that field. When TaxSlayer demanded a country name, I picked "Japan" as the largest international holding for most international mutual funds - but this isn't a good answer - "various" is accurate.
4) Especially important for Tax Slayer: in the description, type the 3 letters "RIC" and nothing else. Tax Slayer actually looks at this field, and has some additional handling for Registered Investment Companies. Same when filling it out by hand: "RIC" for those of us with just mutual funds or ETFs.
5) And finally, finish part I of form 1116 by listing the ordinary dividends in column "A". Part I makes some calculations about your overall income, your income from foreign sources, and may limit the foreign tax credit based on the results of that comparison. The tax software should kick in and fill out the other fields at this point. Even my $17 H&R Block Deluxe download does this.
6) On to form 1116 part II, where you fill in column (o) with the foreign tax paid. I'm torn on what to list for the date, since it's various mutual funds over time. I tend to just put Dec 31st of the year in question, so "12/31/2018" for the most recent one - but that could be wrong. But it's at least helpful, and close to the date when most mutual fund / ETFs have their biggest dividends of the year.
The rest should be automatic, and the running total of "tax owed" should have just dropped by the amount of your foreign tax paid. Hope that helps, but if someone with more tax experience wants to correct my steps above, by all means help me out. You'll be doing more than Tax Slayer and H&R Block have done!
