I'm an expat in the UK, filing jointly with my spouse who lives and works in the US. As a good US citizen, I'm supposed to report my meager UK income--which the UK already taxes quite heavily--and then either take a credit for my paid UK taxes (Form 1116) or exclude this income (Form 2555). For my small UK income, either strategy *should* avoid double-taxation, but strangely neither does in practice (at least using Turbotax) so I am trying to figure out why and if it is an error.
Before I enter my UK income, Turbotax estimates that we owe about $1,500. After entering my UK income as Foreign Earned Income, Turbotax estimates that we now owe about $15,000. If I try excluding the UK income via Form 2555, Turbotax estimates that we owe about $10,000--still much more than the original $1,500, despite my income not approaching the foreign exclusion limit. If instead I try claiming a credit for the foreign tax that I've paid, via Form 1116, Turbotax tells me that we now owe $5,500--still well above the original $1,500, despite my UK income already being taxed at a much higher rate in the UK.
This can't possibly be right, can it?
