Two forms 1116, one for general and one for passive. Paid or Accrued.

[ConfusedForeignTaxPayer]

Hi,

I worked remotely in a foreign country for a US company in 2021 and earned a salary. In April 2022, I did the taxes in that foreign country and paid the tax bill. According to my understanding, this means that I accrued the tax in 2021 and paid it in 2022 and that this is for "General Income"

In addition, I have foreign tax credit from 1099s that were automatically entered as "Passive Income".

I would like to file form 1116 for the foreign tax credit. I cannot put in a paid date of "4/10/2022" because this date is past 12/31/2021 (blocked by the software). However, if I choose accrued I can put in the data 12/31/2021 and this works fine.

My problem is that then I have some foreign tax credit paid and some foreign tax credit accrued, which I believe is disallowed by the IRS. For some reason, turbotax does not block this.

In addition, the choice to accrue foreign taxes applies to all foreign taxes qualified for the credi... 

Is the correct course of action here:

(1) Choose "accrued" 12/31/2021 for the general income and "paid" for the passive income. 

(2) Wait until next year when I will be able to choose "paid 4/10/2022" for the general income.

If I choose "accrued", will this affect future filings also for the Passive Income FTC?

Thanks!

[rogge1722]

According to Pub 514 under Credit for Taxes Paid or Accrued.
Cash method of accounting. (Taxes Paid)

If you use the cash method of accounting, you can choose to take the credit either in the year you pay the tax
or in the year you accrue it. You are using the cash method of accounting if you report income in the year you actually or constructively receive it, and deduct expenses in the year you pay them.

Thus you can report the taxes paid and take the credit in TY2021 even though you actually paid the tax in 2022. You would use 12/31/2021 for the date since TT won't accept a date in 2022. This enables you to use "Paid" for both categories of income.