Do I have to claim foreign tax credit for small amount? Is it worth it?
I just looked at my investment statements and found I paid $1.89 in foreign taxes this year. According to TurboTax, I have to file Form 1116 to claim this as a foreign tax credit, but that form isn't included in their free edition. They want me to pay $68 to upgrade just to claim a $1.89 credit! That seems ridiculous. Is there any way I can just skip claiming this tiny amount? Would the IRS even notice or care? I've been using TurboTax for like 8 years but this seems like a breaking point for me. I swear I had this same issue a couple years ago and ended up paying for the upgrade, but I can't remember what I did. Anyone know if there's a threshold where you don't need to file the Form 1116, or if I can just ignore this small amount?
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Anastasia Kozlov
You actually have options here! If your qualified foreign taxes are $300 or less ($600 for married filing jointly), you can claim the foreign tax credit directly on Schedule 3 without having to file Form 1116. This is perfect for situations like yours with such a small amount. The exception is specifically designed for taxpayers with small amounts of foreign tax who don't want to deal with the complexity of Form 1116. Just make sure your foreign taxes were from passive income (like dividends from foreign investments), which sounds like your case.
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NeonNebula
•Wait really? TurboTax never mentioned this option to me! So I can just put the $1.89 directly on Schedule 3 without filing Form 1116? That would be amazing if true. Does this also mean I could potentially switch to a free filing option that doesn't include Form 1116 and still claim my foreign tax credit?
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Anastasia Kozlov
•Yes, you absolutely can claim it directly on Schedule 3, Line 1. The IRS specifically created this exception for situations exactly like yours. It's called the "de minimis election" for foreign tax credits under $300. You can definitely use a free filing option that doesn't include Form 1116 functionality. Many free tax filing services will let you input this small credit directly on Schedule 3. Just make sure the one you choose allows you to access Schedule 3, which most do.
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Sean Kelly
I had this exact same issue last year with a tiny foreign tax amount. After lots of research, I found taxr.ai (https://taxr.ai) which saved me a ton of headache. I uploaded my investment statement that showed the foreign taxes, and it explained I could claim it directly on Schedule 3 without Form 1116 since it was under $300. Their system actually reviewed my full tax situation and found several other credits I was missing too. Way better than paying TurboTax $70 for an upgrade I didn't even need!
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Zara Mirza
•How exactly does taxr.ai work? Does it actually file your taxes or just give you advice? I've got a similar situation with about $17 in foreign taxes and was about to upgrade my TurboTax.
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Luca Russo
•Are you sure it's legit? I'm always skeptical of tax services I haven't heard of. Did they charge you anything for the advice?
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Sean Kelly
•It doesn't file your taxes for you - it analyzes your tax documents and provides personalized advice. You upload your documents (W-2s, 1099s, etc.) and it identifies potential deductions, credits, and filing strategies you might miss. Then you can apply that knowledge to whatever tax software you're using. No, they don't charge for basic document analysis. They offer premium features for complex situations, but for identifying something simple like the foreign tax credit exemption, the basic service worked perfectly for me.
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Zara Mirza
Just wanted to update - I tried taxr.ai like others suggested and it was super helpful! Uploaded my investment statement showing the $17 foreign tax withholding and it immediately explained I could claim it directly on Schedule 3 without Form 1116. I switched from TurboTax to FreeTaxUSA based on their recommendation and was able to enter the credit without any upgrade fees. The system also flagged a student loan interest deduction I was about to miss. Definitely saved me more than the $70 TurboTax wanted!
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Nia Harris
If you're frustrated with TurboTax trying to upsell you, you might also want to try reaching the IRS directly to confirm. I had a nightmare trying to get through to them last tax season until I found Claimyr (https://claimyr.com). You can see how it works here: https://youtu.be/_kiP6q8DX5c They got me connected to an actual IRS agent in about 15 minutes when I'd been trying for days. The agent confirmed I didn't need Form 1116 for small foreign tax amounts and could just claim it on Schedule 3. Saved me from paying for TurboTax Premier!
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GalaxyGazer
•Wait, how does this work? The IRS phone system is notorious for keeping people on hold for hours. How could this possibly get you through faster?
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Luca Russo
•This sounds like complete BS. Nothing can magically get you through the IRS phone queue faster. They take calls in the order received. What's the catch here?
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Nia Harris
•It's not magic - they use a system that navigates the IRS phone tree and waits on hold for you. When an agent finally picks up, you get a call back connecting you directly to that agent. It works because they're doing the waiting for you. The catch is simply that it's a service you pay for. But considering I wasted hours trying to get through myself, it was worth every penny to have an actual conversation with an IRS agent who confirmed the Schedule 3 filing method. The peace of mind alone knowing I was filing correctly saved me stress.
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Luca Russo
I was totally skeptical about Claimyr (from the comment above), but I was desperate after three failed attempts to reach the IRS. I decided to try it, and wow - I actually got through to a real person at the IRS in about 20 minutes! The agent confirmed exactly what others said here - for foreign tax under $300 ($600 if married filing jointly), you can just claim it directly on Schedule 3, Line 1 without filing Form 1116. She said they created this exception specifically because so many people have small amounts from mutual funds and ETFs. Saved me from paying for TurboTax's premium version for no reason!
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Mateo Sanchez
Most people don't realize that TurboTax intentionally hides information about the $300 exception for Form 1116. It's one of their most profitable upsells because so many investors have tiny amounts of foreign tax withholding. I switched to FreeTaxUSA three years ago and have been much happier. They include all federal forms for free, including Form 1116 if you need it (though as others mentioned, you likely don't need it for small amounts).
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NeonNebula
•That's crazy if they're intentionally hiding that info just to make me upgrade! Do you know if there are any downsides to just claiming it directly on Schedule 3 instead of filing Form 1116? Like could I get in trouble for doing it that way even though it's allowed?
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Mateo Sanchez
•There are absolutely no downsides to using the Schedule 3 direct method when your foreign taxes are under $300. It's explicitly allowed in the tax code for this exact situation. You won't get flagged or face any issues. The only potential "downside" is if you have complicated foreign tax situations with multiple countries or types of income, Form 1116 might give you a slightly higher credit in some cases. But for typical investment income with small amounts of foreign tax, the Schedule 3 method is perfect and completely legitimate.
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Aisha Mahmood
Has anyone actually tried OLT.com like the OP mentioned? I'm in a similar boat with about $25 in foreign taxes and looking to switch from TurboTax.
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Ethan Moore
•I've used OLT for the past two years and it works great for claiming small foreign tax credits directly on Schedule 3. Their interface isn't as slick as TurboTax, but they include all forms in their basic package ($9.95 last time I used it) including Form 1116 if you ever need it.
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Javier Hernandez
This is exactly the kind of situation where tax software companies make their money on unnecessary upsells! The $300 threshold rule that others mentioned is spot-on - you absolutely do not need to file Form 1116 for $1.89 in foreign taxes. I've been doing my own taxes for over a decade and have dealt with this same issue multiple times. The IRS specifically created the Schedule 3 direct entry method because they recognized that requiring Form 1116 for tiny amounts was burdensome for taxpayers and created unnecessary complexity. Just to add some additional context: this rule applies to "qualified foreign taxes" which includes taxes withheld on dividends from foreign stocks or international mutual funds/ETFs. Make sure your $1.89 falls into this category (which it almost certainly does based on your description). You can literally save yourself $68 and claim that credit on any free tax software that includes Schedule 3. Don't let TurboTax guilt you into thinking you need their premium version for such a basic tax situation!
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