Under what circumstances is it advantageous to take a deduction rather than a credit for taxes paid in a foreign country?

It is generally advantageous to claim deduction rather than credit Because the foreign tax credit reduces taxes on foreign income and does not reduce U.S. income. The deductions can help reduce the double taxation on the taxable income. Standard deductions will help reduce the tax liability of an individual.

Do you get carry over credit for foreign taxes?

Per IRS, If you can’t claim a credit for the full amount of qualified foreign income taxes you paid or accrued in the year, you’re allowed a carryback and/or carryover of the unused foreign income tax, except that no carryback or carryover is allowed for foreign tax on income included under section 951A.

How can I deduct foreign taxes on my tax return?

You can choose each tax year to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. You can change your choice for each year’s taxes. To choose the foreign tax credit, you generally must complete Form 1116, Foreign Tax Credit and attach it to your U.S. tax return.

What happens if you are short on foreign tax credits?

If you were short on credits in the previous year, your leftover amount must be carried back. For example, if you have a $500 carryover amount and in the previous year you were short $600 in credits on foreign income, you must carryback that $500 to that previous year instead of carrying it forward.

Which is better the FTC or the foreign income exclusion?

The Foreign Earned Income Exclusion (FEIE) lets you deduct foreign income from your yearly tax filing like any other deduction, while the FTC lets you claim a dollar-for-dollar tax credit to reimburse you for taxes already paid to your host country. Many expats ask us which is better, using the tax credit or the foreign income exclusion.