Foreign Tax Credit

[Ruth1]

I am struggling with the 1116.

Client lived 1/2 in Germany and 1/2 in US. Initially, I just did the 2555 exclusion but that did  not exclude all income so I prepared the 1116 for the remainder I could take on the  overage.

I noticed then that the previous year accountant who is a US EXPAT tax help used only the foreign tax credit to wipe out all the liability plus some carryovers. I deleted the 2555 just preparing the 1116 and I get a best result but am feeling unsure. Does this seem appropriate to those of you who do this type of work all of the time?  

If this does sound appropriate I still get a critical diagnostic about SCH INC and the foreign W2 not having a EIN. I believe I've checked off all the other foreign address et al so am wondering if this will preclude me from filing electronically?

[sjrcpa · Accepted solution]

It is entirely possible that claiming Foreign Tax Credit will give a better result than foreign earned income exclusion or a combination of the two.

Somewhere there is a box to check  for foreign employer.

[Ruth1]

Thanks very much. You put my mind at ease.

[sjrcpa]

You're welcome

[itonewbie]

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@Ruth1 wrote:

Client lived 1/2 in Germany and 1/2 in US...

I noticed then that the previous year accountant who is a US EXPAT tax help used only the foreign tax credit to wipe out all the liability plus some carryovers...

If this does sound appropriate I still get a critical diagnostic about SCH INC and the foreign W2 not having a EIN. I believe I've checked off all the other foreign address et al so am wondering if this will preclude me from filing electronically?

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You mentioned the client lived half of the time in Germany and half of the time in the US.  It sounds very much like he has a US abode, which may preclude him from qualifying for §911.  That could be the reason why the previous accountant did not file a F.2555.  Don't have enough info from your post to give an opinion.

What Sch INC are you referring to?

As for EIN, you just need to check the box that no W-2 was issued for foreign compensation, that services were not for services performed in the US, and select the country in which services were performed.

[Ruth1]

Thank you. I have checked off all those items you mention. Still getting that diagnostic.

My next question then is I input Foreign wages in the Form 2555 screen as opposed to the W2 screen. Was that correct?

The previous year he worked solely in Germany. He was there the entire year. 

[Ruth1]

The INC is now that you mention it, probably my state form for W2's. 

[itonewbie]

If your client is not filing a F.2555, you should use just the W-2 input.  You would enter the sourcing on the input screen for F.1116.

[Ruth1]

Thank you kindly

[itonewbie]

NP, @Ruth1!