Foreign Tax Credit

[Feelenjoy]

Hello,

My spouse worked in France for all of 2024 as a dual national. She was paid on the local economy and paid French taxes at an estimated 31% versus the 20-something we will owe in the US. I'm struggling with how best to capture this in TurboTax Premier. I understand how to claim the foreign earned income exclusion, but that disadvantages my U.S.-based income calculations. I'm trying to understand if taking the foreign tax credit makes more sense, but I can't figure out how to properly enter it into TurboTax; everything I try gives me 0 credit.

To run the numbers on the Foreign Tax Credit, should I also enter the income into the Foreign Earned Income section and not claim the exemption, then try to get the credit to appear in deductions? What's the proper way? Thank you. 

[DaveF1006]

It depends. You do need work it out both ways to see which works out best for you. Here are some steps you can use to determine if the foreign tax credit.

1. Go to Federal
2. Deductions and credits 
3. Estimate and other taxes paid 
4. Foreign Tax Credit>start or revisit
5. When it asks We just need to check if you have any uncommon situations indicate I paid foreign taxes on income I earned while working in another country. 
6. At some point in the interview, it will ask if you wish to take a deduction or a credit. If you are able to itemize deductions, you may consider taking the deduction.
7. There will be questions in the next screen asking you the description of the Foreign Taxes paid and the amount.
8. If you find that this has no effect on your tax return, you may circle-back and choose you wish to take a credit.
9. Navigate and record the entries that the program asks for and when you reach the page that mentions Foreign Tax Credit Worksheet, this is where you take notice.
10. The first that you will be asked is what category of income is it, you will say Passive income.
11. Next screen will say Country Summary, select add a country 
12. When it says Other Gross Income - XXXX, Here you put in the Gross Amount you earned in that country. 
13. Then you will navigate through the screens until you come to a screen that says Foreign Taxes Paid - XXXX, here is where you record the amount paid under Foreign Taxes.
14. Finish out the section. 

There may other reasons why your foreign tax credit is 0.  The Foreign Tax Credit is a non-refundable credit, which will be used to reduce your tax liability in your return.  If there is no tax liability to reduce, then the foreign tax credit is "0" but carried over for a period of ten years to be used to offset foreign taxes on future foreign income.

[Feelenjoy]

Thanks—here is my follow-up question. I think I should use the general category income rather than passive since the income we're talking about is earned income wages. When I go through the wizard, the numbers look roughly like what I would expect when I use passive income. However, when I use the general category, TurboTax negates the credit by adding an item to Form 1116, line 12, which negates what we calculated (and paid) from line 11.  Do you have any idea how I can use the general income category without it zeroing out the tax credit on line 12?

I entered the foreign-earned income in the wages section of TurboTax but opted not to take the exclusion.

[Feelenjoy]

Please ignore me.  I'm not sure where I entered things incorrectly, but I started a fresh file, and it worked as expected.  The FTC was more advantageous than the FEIE.