While some or all of the foreign earned income can be excluded from federal income tax, a taxpayer cannot claim both foreign earned income and foreign tax credit exclusions on the same income. If the taxpayer chooses to exclude either foreign earned income or foreign housing costs,...
Both the Foreign Tax Credit and Foreign Earned Income Exclusion may reduce taxes on income earned from a foreign country. The Foreign Tax Credit will reduce your tax due based on the eligible amount of tax you owe the foreign country for taxes while the Foreign Earned Income Exclusion only excludes income items for tax filing purposes.
Can a dual-resident taxpayer claim an exclusion for a ? Can a dual-resident taxpayer claim an exclusion for a “foreign Earned Income” for the part that he/she is a resident alien period? Here is the situation. A taxpayer became a Green Card holder in December. He files on a calendar basis. Throughout the entire year, he lived outside the country.
When Should I Utilize The Foreign Tax Credit and When ? Firstly, as the name indicates, one can only take the foreign earned income exclusion on foreign EARNED income. As such, foreign passive income does not fall into this category.
But you can’t claim the foreign tax credit if you take either the foreign earned income or foreign housing exclusions. Since tax credits directly reduce your tax bill as opposed to your taxable income, the IRS says in most cases you’ll be better off claiming the foreign tax credit. If in doubt, run the numbers to find out which is the best
Even though they still have to file, most expats don’t end up paying any US tax though, as they claim either the Foreign Tax Credit, or the Foreign Earned Income Exclusion, when they file.
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