Solved: I paid $15,750 in foreign taxes. Better to take tax credit or itemized deduction?
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I paid $15,750 in foreign taxes. Better to take tax credit or itemized deduction?

 
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Level 7

I paid $15,750 in foreign taxes. Better to take tax credit or itemized deduction?

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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Level 7

I paid $15,750 in foreign taxes. Better to take tax credit or itemized deduction?

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.

View solution in original post

New Member

I paid $15,750 in foreign taxes. Better to take tax credit or itemized deduction?

That's what TT tells you in Easy Step yet when I click take deductions, TT instantly shows a higher refund.  What's up with that?
Level 7

I paid $15,750 in foreign taxes. Better to take tax credit or itemized deduction?

This post is nearly a year old. Please create a new thread to post your question.
Note, however, that without knowing the specific details of your income and deductions, it is not possible to speculate why a credit or deduction may or may not change the refund estimate.
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