Foreign Tax Credit vs Foreign Earned Income Exclusion

[@UK-Property-Tax-Accountants]

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[@xil.sanctified]

This was extremely useful and completely satisfied my questions allowing me to finalize my return. Appreciate your videos -- you deserve a pint so I've bought you one ;)

[@UK-Property-Tax-Accountants]

🤩 Wowzers - that is really kind of you. Thank you ever so much. Totally appreciated and unexpected - thank you 🙏

[@gotishah9000]

Thank you so much for your detail explanations and showing differences between two forms 1116/2555. Your video is so informative.I am in Canada and our tax rate is very high. I did not know about foreign tax credit form 1116. Your video HAS made my tax return very simple.Thank you so much. I definitely file form 1116 .

[@UK-Property-Tax-Accountants]

I am delighted that you have now found a new friend in the form 1116. Best of luck completing your tax return

[@AaronMullis]

I found this useful, but felt like the video could better address using both forms. As I understand it, a taxpayer can use Form 1116 to claim the credit against any income amounts above the exclusion amount. Have you done a video discussing this? For example, in this scenario, what if the taxpayer had total foreign earnings in excess of the housing and annual exclusion. Can you not take a pro rata credit of taxes paid on any income that are not excluded on Form 2555?

[@UK-Property-Tax-Accountants]

You are right. There are so many scenarios that can be played out. Sadly the video length would be too long and people would not watch it. The average view duration on my videos is only 3 1/2 minutes. You can imagine that most people do not want too much detail. I have done other videos around this subject but again done in a general way to give people awareness I appreciate your thoughts and ideas for future videos 👍🙏

[@jsnackables]

Incredible breakdown, thank you very much! Do you have recommendations for expat tax services companies UK to US?

[@UK-Property-Tax-Accountants]

We can certainly help you. Visit www.optimiseaccountants.co.uk for more details

[@MRP-nl4tn]

I live in Spain and I received income from a Traditional IRA distribution in the US, from a pension for the years I worked in a EU country and from a US bank interest. In Spain I paid taxes on all 3 sources. Can I get FTC on my US taxes? Do I get this by filling form 1116? If yes, do all the above go into the same category, passive income? Or do I also have a general category (for which source)?

[@UK-Property-Tax-Accountants]

You pay Spanish income tax on your worldwide income as you do in the US. You can use FTC to get a tax relief on US taxes to prevent double taxation. 👍

[@MRP-nl4tn]

@@UK-Property-Tax-Accountants What I don’t know is: in form 1116 all income goes under same category or separate and under what category: passive income, general income or re-sourced by treaty?

[@UK-Property-Tax-Accountants]

In most Tax software you would enter the different categories of income and then apply form 1116 or form 2555. I cannot comment on this too much as I am not the one who does the tax returns in our firm

[@pitchinrules88]

i have question! lets say i earn 200k in a country with 10 percent income tax. meaning post tax it will be 180k. i am US citizen so if i do FEIE at 2024 rate of 126,000 exclusion, that means my net income will be 165,000 USD. does this mean i have the difference of 180k-165k= meaning now i owe 15k to IRS? i know this is very generalized !

[@UK-Property-Tax-Accountants]

Yes the remaining will be subject to US tax but you can still use the FTC form 1116 on the taxable amount 👌

[@jperezjacome]

Great video, thanks. Now I have a question: If I use form 1116 and I get credit with it, do I actually get a tax reimbursement? (or rather it just gets carrued to another year) Thanks

[@UK-Property-Tax-Accountants]

Unused tax credits are carried forward. This is why they are better than foreign income exclusions for high taxed countries

[@jperezjacome]

@@UK-Property-Tax-Accountants Thanks again for your quick response. So is it or is it not possible to get a check (or deposit) for this credit?

[@UK-Property-Tax-Accountants]

Nope 👎

[@atulchivate6170]

@@UK-Property-Tax-Accountants How unused tax credit will be consumed? because with higher taxed countries, higher taxes will be continued to deduct every year, then the unused tax credit, how it can be applied next year for foreign tax?

[@UK-Property-Tax-Accountants]

@atulchivate6170 it would be utilised if you move to a lower tax country or you have tax exempt income in the foreign country

[@paulmccutcheon2735]

I think your video would be more useful if you actually showed a complete working all the way through in both cases. Also, you do not mention the case where the foreign income exclusion exceeds your total income.

[@UK-Property-Tax-Accountants]

Thanks for the feedback. I would love to do longer videos The KZbin algorithm suggests that people only watch 5-6 minutes so most would not watch it If FEIE exceeds taxable income there is no tax nor credits carried forward. The net result is 0.