Foreign Tax Credit vs. Foreign Income Exclusion

[Bilber]

I live in the UK and have for the last 9 years claimed a Foreign Tax credit not the FIE. How do I "tell" Turbotax that I wish to tax the credit not the exclusion. the only options in the step by step are: try to exclude my income, or I am not eligible.  I am eligible but my tax rate is higher in the UK and prefer to not elect to use the FIE. 

[LinaJ2020]

If you do not want to claim the foreign earned income exclusion but only the foreign income tax credit, in the foreign earned income section, you would need to check the box that you do not want to exclude.  See the steps below:

In TurboTax desktop,

• Sign in to your account, select Pick up where you left off
• At the right upper corner, in the search box, type in foreign income and Enter 
• Select Jump to foreign income 
• Follow prompts
• On-screen, Would You Like to Try and Exclude Your Foreign Earned Income? select No
• Next screen, Delete Confirmation, select Yes
• See the images below

Then you would enter your foreign tax credit information. Here are the steps:

• At the right upper corner, in the search box, type in "foreign tax credit" and Enter
• Select Jump to foreign tax credit
• Follow prompts

Lastly, just a friendly reminder that you cannot claim both the foreign earned income exclusion and a foreign tax credit on the same amount of foreign income.  The IRS does not allow double-dip.

[Bilber]

If I set yes to try and exclude FEI, will turbotax decide which situation is better?  That is will it choose to take the credit over the FEIE?

Thanks!

[LinaJ2020]

No, it won't choose for you.  If you tell the program not to exclude the income, and you also enter the foreign tax credit information, the program will calculate the tax credit for you. 

[Matpel]

Hello. Can we benefit from both the Foreign Earn Income Exclusion and the Federal Income Deduction (12,200$ for a single filer). Meaning that the exclusion is up to 118,100$?

For example, if the FEIE does not cover 100% of the annual income, but when adding the 12,200$ Federal deduction it brings it to 0 (as below)

Foreign annual income $112,000 

Foreign Income Exclusion - $105,900 (amount excluded)

Foreign annual income after FEIE : 6,100$

Federal Deduction: 12,200$
Taxable income: 0$
(that’s what TurboTax showed)

In that case, I guess we do not need to use the Foreign Tax Credit because Federal Tax seems to be 0 already. On other discussions, I’ve never read about the Federal Deduction, people just saying that Federal Tax will be calculated on the part exceeding the FEIE. 

Thanks for your help.  

[DavidS127]

Yes, your Standard Deduction of $12,200 is used in the calculation of your taxable income regardless of whether you have a Foreign Income Exclusion. 

Technically, your income exceeding the Foreign Income Exclusion is included in adjusted gross income (AGI).  The Standard Deduction is subtracted from AGI as a part of the calculation of Taxable Income.