Leave off Foreign Earned Income Exclusion (Form 2555)

[dbenbenn]

TurboTax doesn't seem to understand that you can't take Foreign Earned Income Exclusion and Foreign Tax Credit both. irs.gov/instructions/i2555.

The review step says:

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Form 2555-T: Total Foreign Earned Income has a value for foreign earned income but dates for the foreign earned income exclusion aren't entered. Form 2555 must be completed including dates for bona fide residence or physical presence for the foreign earned income exclusion to calculate. To complete Form 2555, or to remove indicators that foreign earned income qualifies for exclusion on Form 2555 either on a W-2 or as Other Income on your return, return to Interview and search for 'foreign income'.

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How do you "remove indicators that foreign earned income qualifies for exclusion on Form 2555"?

Following https://ttlc.intuit.com/community/tax-credits-deductions/discussion/how-do-i-delete-the-foreign-earn... I answered "Neither of us" at "

Whose Foreign Income Would You Like to Try and Exclude?" to get it to leave off Form 2555.

[joneska11]

You can qualify for either or both the foreign earned income exclusion and foreign tax credit. You just cannot take foreign tax credit on the same income that is excluded using the foreign earned income exclusion.  As the maximum exclusion is $107,600 for tax year 2020 and say your foreign income was $150,000 for year 2020, then you would have income left over that was not excluded to utilize foreign tax credits.

If you do not wish to take the foreign earned income and instead take only the foreign tax credit, you still need to enter your information into the foreign earned income exclusion section, up to the point that where the program asks you to see if you qualify for the foreign earned income exclusion.  You need to tell the program that you do not qualify for the Bona fide residence test by putting in dates such as 2/21/20 to 10/21/20.  As this is less than a year, the program will indicate the following:

You Don't Qualify

Based on you answers, you can't claim the foreign earned income exclusion.

However, you may qualify for the foreign tax credit.

We'll handle this later in the Deductions and Credits section.

Note: Form 2555 is about to be removed from your return but the foreign income you entered will NOT be removed.

A resource that my be of assistance is Publication 54 Tax Guide for US Citizens and Resident Aliens Abroad on the IRS website.

[LinaJ2020]

You cannot apply both Form 2555 and 1116 to the same amount of income.  In the program, you will apply the Form 2555 first and the remaining for Foreign Tax Credit. 

After you enter the foreign income exclusion info, you will need to go through the foreign tax credit section to make adjustment how much foreign income and taxes should be used to calculate the correct amount of foreign tax credit.  TurboTax does not automatically pro-rate the benefit. 

Here are the steps: 

• Open up your TurboTax account and select Pick up where you left off
• At the right upper corner, in the search box, type in "foreign tax credit" and Enter
• Select Jump to foreign tax credit
• Follow prompt

If you have paid taxes to both foreign and the US tax authorities, the IRS allows you to claim a foreign tax credit on your US tax return.  Your foreign earned income and exclusion will show on Schedule 1 and the foreign tax credit will show on line 1 Schedule 3 and line 20 of your Form 1040.