Generally, taking a foreign tax credit on Form 1116 gives you a lower tax bill than if you deduct any foreign taxes paid as itemized deductions. When you itemize deductions on Schedule A, each dollar of deduction reduces your taxable income. When you take a foreign tax credit, each dollar of tax paid reduces your income tax.
To be accurate, as you entering the information, the program will help you decide. Please follow these steps:
- After sign into your account, select Take me to my return / pick up where I left off
- At the right upper corner, in the search box, type in foreign tax credit and Enter
- Select Jump to foreign tax credit
- Start with screen Foreign Taxes and select Continue to follow the next prompts.
- Stop on-screen, Do you want the Deduction or Credit? click on blue link help me decide
- Proceed to finish completing the information.
