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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.
Here's why: 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.
For example, Kathy paid foreign taxes of $100. She is in the 25% tax bracket. Kathy takes the $100 deduction on Schedule A and reduces her tax by $25. If Kathy takes a foreign tax credit instead, she reduces her tax by $100! That's a $75 dollar difference for every $100 in tax paid.
Most of the time, if you paid less than $300 ($600 if married filing jointly) in total foreign taxes, you don't even need to complete Form 1116 to get the credit.
Under the Foreign Tax Credit topic in TurboTax, you must choose only one way to report any foreign taxes paid.
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.
Here's why: 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.
For example, Kathy paid foreign taxes of $100. She is in the 25% tax bracket. Kathy takes the $100 deduction on Schedule A and reduces her tax by $25. If Kathy takes a foreign tax credit instead, she reduces her tax by $100! That's a $75 dollar difference for every $100 in tax paid.
Most of the time, if you paid less than $300 ($600 if married filing jointly) in total foreign taxes, you don't even need to complete Form 1116 to get the credit.
Under the Foreign Tax Credit topic in TurboTax, you must choose only one way to report any foreign taxes paid.
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