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dornstein22
Level 2

Form 1116: year tax is paid or year income earned?

I earn a salary from from foreign employer and qualify for the foreign earned income exclusion. I don't have other income.

For income earned / received in 2019 calendar year, I will not pay the foreign government its taxes until the tax notice is issued to me (March 2020), which will cover my income earned/received in 2019.  What I want to do is file my US taxes based on my 2019 income AND in that same filing take the credit for the taxes paid related to that income. 

 

What is confusing me is whether in my US filing for 2019 I enter on Form 1116 the (i) taxes I paid in 2019 in my foreign country, or (ii)  taxes paid on income earned in 2019.  I am hoping it is the latter.

 

1. Am I correct to understand when I file my 2019 US return in 2020 that covers my 2019 income, I include the foreign taxes paid in 2020 for that 2019 income?

 

2. If yes, I can put [mm] [dd] 2020 for the date of payment in my 2019 US return filed in 2020? 

 

3. In the above example, do I mark Paid or accrued?  

1 Best answer

Accepted Solutions
KarenJ2
Expert Alumni

Form 1116: year tax is paid or year income earned?

  1. You can choose either accrued or paid for foreign tax.  Once you choose "accrued" you need to use that going forward.  You cannot switch back to paid.  If you choose" paid", you need to claim all the foreign tax you paid in 2019, no matter what year it relates to.  If you claim "accrued" you need to enter the tax that you will pay in 2020 but relates to 2019.
  2. Taxes are considered "accrued" for 2019 as of 12/31/2019.  So the date should remain as is
  3. "Accrued"
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1 Reply
KarenJ2
Expert Alumni

Form 1116: year tax is paid or year income earned?

  1. You can choose either accrued or paid for foreign tax.  Once you choose "accrued" you need to use that going forward.  You cannot switch back to paid.  If you choose" paid", you need to claim all the foreign tax you paid in 2019, no matter what year it relates to.  If you claim "accrued" you need to enter the tax that you will pay in 2020 but relates to 2019.
  2. Taxes are considered "accrued" for 2019 as of 12/31/2019.  So the date should remain as is
  3. "Accrued"
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

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