According to the IRS, you cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. Here is an example how the tax is determined.
- Foreign Taxes paid between April 2022-March 2023 is $2000.
- Number of days between Jan-March2023 is 89.
- The tax would be calculated by the following formula. ($2000) (89/365) = $488. If you decide to use the cash basis, this is the amount of credit you are entitled to receive.
- To receive a bigger credit, you may wish to choose the accrual method rather than the cash method, which you have the right to do so.
- If you decide to use the accrual method for taxes accrued between April-Dec 2023, your foreign tax credit would be $2000-488= $1512. If you choose the accrual method though, it is binding for all future tax years.
Here are some sources you may wish to look at for future reference.
The Tax Advisor
IRS Publication 514 Look in the section that mentions Credit for Taxes Paid or Accrued.
I hope this helps.
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