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Posted by removeps-groups@yahoo.com on May 21, 2008, 1:01 pm
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On May 21, 6:29 am, ben.a.bo...@gmail.com wrote:
> I live and work in Switzerland and get paid by a Swiss company. If I
> take the exclusion, can I take the foreign credit, or are they
> combined? So even if I earn over the $85k for the exclusion I can
> still deduct the foreign tax.
Yes, you do get to take both, but the foreign tax credit is reduced by
foreign earned income exlusion. See the instructions for line 12
("Reduction in foreign taxes") of form 1116.
<Quote source="http://www.irs.gov/instructions/i1116/
ch02.html#d0e2588">
Line 12
You may have to reduce the foreign taxes you paid or accrued by the
following items.
* Taxes on income excluded on Form 2555 or Form 2555-EZ. Reduce
taxes paid or accrued by the taxes allocable to any foreign earned
income excluded on Form 2555 or Form 2555-EZ. If only part of your
foreign earned income is excluded, you must determine the amount of
tax allocable to excluded income. To do so, multiply the foreign taxes
paid or accrued on foreign earned income received or accrued during
the tax year by the following fraction.
Numerator: Foreign earned income and housing amounts you
excluded for the tax year minus otherwise deductible expenses (not
including the foreign housing deduction) allocable to that income.
Denominator: Your total foreign earned income received or
accrued during the tax year minus deductible expenses (including the
foreign housing deduction) allocable to that income. However, if the
foreign jurisdiction charges tax on foreign earned income and some
other income (for example, earned income from U.S. sources or a type
of income not subject to U.S. tax) and the taxes on the other income
cannot be segregated, the denominator is the total amount of income
subject to foreign tax minus deductible expenses allocable to that
income.
See Pub. 514 for a comprehensive example.
[More rules follow]
</Quote>
So if your salary is 90k you may not get any foreign tax credit after
the exclusion, but if 1M then probably.
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