@Sammy25 , yes your Canadian salary should be part of your AGI ( if you are not excluding the income but choosing Foreign Tax credit ).
(a) your Canadian wages should have been entered as schedule-C ( sole proprietor / self-employment income). If it salary then there are no expenses to deduct against this gross income;
(b) Schedule-C income would trigger Schedule-SE -- self-employment at 15.3% of most of the Schedule - C income) . You can also reduce this bite by attaching a "Certificate of participation " from the Canadian equivalent of US Social Security --- because Canada has a totalization agreement with US.
(c) All the above is in addition to what you show as Foreign Source Income on form 1116. Note though that while the foreign taxes paid is recognized dollar for dollar, actual amount allowable for the current year would be limited to lower of US tax on the income and a ratio of your foreign source income to world income.
Does this solve your problem ?
pk
