Hello experts,
For the 2023 tax year I was liable to pay income taxes in another country (Denmark) on a portion of my income, even though all my income comes from a US company. This is due to how Denmark taxes stock awards that are granted while working in Denmark, but vesting after leaving.
This resulted in around $10.000 of my income being subject to income taxes in Denmark, which translated to $4.300 in income taxes paid in Denmark.
However, this income was also fully included in my W-2, and therefore in principle taxable in the US as well.
When claiming this credit on my US taxes through form 1116, the limit up to which I could claim a credit was only around $2.000, as this was only a small portion of my total income. My total gross income puts me in the 32% bracket, so this effectively feels like I paid taxes on this portion of income twice - once at the 43% income tax rate in Denmark, and then additionally another 12% in the US (as only 20% was credited).
I will be in a similar situation the next couple of years, but the income portion taxable in Denmark will be gradually decreasing.
How can I ensure I fully utilize the foreign tax credit and not pay an effective tax rate of over 50% on this income?
As I understand it, the foreign tax credit can be rolled over to next year, but I don't understand what good that will do as I will still have to pay the tax in Denmark, and will still not receive a full tax credit for this in the US as this income will be an even smaller portion of my total income.
Thank you in advance for your opionions and advice.
