I have read many posts on the above topic but am still a little unclear. I am making a hypothetical scenario to clarify my situation and ask what option I should chose. It would be great to if someone can help out.
US citizen, resident of EU country (same tax year dates 1/1 to 12/31) earns lets say 5000$ salary and has 5000$ tax withheld at work in 2023.
The person has US-source investments and received interest and dividends, lets say 10000$, on which EU country taxes 25% tax. This tax (2500$) is paid in 2024 and EU country tax is finalized in 2024 before filing US tax return.
For filing US taxes for the year 2023, for the section on form 1116 (FTC) what options should that person choose? Paid vs Accrued? Taxes on wages are paid in 2023, whereas taxes on investment income is paid in 2024.
If "paid" is used, then the taxes paid in 2024 (for investment income of 2023) will need to be reported in the next years US tax return (in which case double taxes will be paid to both EU country and US). OR can 'paid' still be used?
IF 'accrued" is used, it would help for 2023 taxes (as EU tax liability for 2023 is known), however, IF the exact EU tax liability is not known in future years (as the EU country is known for sometime taking years to finalize the tax), it would result in estimation and amendments in future years.
Also what would happen if taxes on investment income are prepaid in EU country starting next year (something like Estimated taxes of IRS). I realize then "Paid" method would work, but then one would be stuck on "accrued" method for this years choice.
Since the choice 'paid vs accrued" is not revocable, I would like to make sure before I choose. I appreciate your time and expertise.
