Filing Form 1116 – Foreign Tax Credit Explained

[jaywave 2]

@Tesco@JKLSemicolon

I think my main concern is getting audited and realizing we did our taxes incorrectly, which could lead to spending even more to fix them. I finally figured out how to claim the Foreign Tax Credit in TurboTax after speaking with an "Expert."

 

@Tesco, I’m guessing you’ve used the Foreign Tax Credit before? I was reading on Reddit that some people got audited after claiming it, which makes me hesitant. Since we’re only getting about $200 more with the credit, I’m not sure if it’s worth the risk. I’d rather just take the loss and play it safe.

 

Any opinions?

Edited March 3 by jaywave

[JKLSemicolon 443]

My opinion is that both the Foreign Tax Credit and the Foreign Earned Income Exclusion are pretty straightforward with any of the guided tax software providers out there. I certainly wouldn’t avoid doing either out of fear of an audit, but if you are uncomfortable with the DIY approach you could always hire a professional tax preparer.

 

Edit: and the way to prepare for an audit, were one ever to happen, is to just make sure you have documentation to back up whatever you entered on the return. In the past I have even written digital notes to myself explaining my reasoning for entering certain things the way I did were a question ever to come up (which it so far never has).

Edited March 3 by JKLSemicolon

[jaywave 2]

On 3/2/2025 at 4:50 AM, JKLSemicolon said:

If you have already made up your mind that’s fine, but based on that you would definitely qualify for the Foreign Earned Income exclusion and the qualifying period that would allow you to exclude the most income would be something like July 28, 2023 to July 27, 2024. During that time the physical presence test would be met since the time spent in the US during that period would be the 31 days from April 1 to May 1, 2024 making the time outside of the US 365 - 31 = 334 days. Using this period, the number of qualifying days in tax year 2024 would be 209 (January 1 to July 27) and the maximum income possible to exclude would be (209/365)*$120,000 = $68,712.

My opinion is that both the Foreign Tax Credit and the Foreign Earned Income Exclusion are pretty straightforward with any of the guided tax software providers out there. I certainly wouldn’t avoid doing either out of fear of an audit, but if you are uncomfortable with the DIY approach you could always hire a professional tax preparer.

@Tesco

I was doing research in this. So yes she can qualify for the foreign tax credit, but the issue is that we can't take the child tax credit. Her foreign income is less than 8,000 us dollars. The issue with the hire a professional tax preparer is that I can't find anyone to do international tax in the midwest.

Does anyone have experience with foreign real estate rental income?

 

[Tesco 93]

8 hours ago, jaywave said:

@Tesco

I was doing research in this. So yes she can qualify for the foreign tax credit, but the issue is that we can't take the child tax credit. Her foreign income is less than 8,000 us dollars. The issue with the hire a professional tax preparer is that I can't find anyone to do international tax in the midwest.

Does anyone have experience with foreign real estate rental income?

 

Have a look at international tax firms:

TFX

Greenback

Google will show others too.