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Can my client take both the foreign income exclusion AND foreign tax credit?

Hi there,

Okay, quick question about a client of mine who lives and works in Europe and want to be ahead of the curve for 2010.

I have filed for him for the past several years and he has usually owed nothing because the foreign income exclusion, standard deductions and exemptions wipe out all his income. Additionally, he payed no taxes in Europe because he worked for one of the European inter- governmental organizations that gave him diplomatic status where he lived, and diplomats are exempt from taxes in Europe (like most places).

While he continues to work in Europe, he changed to a new job in 2010 in the private sector and thus he no longer has diplomatic status and now pays taxes in Europe. His income has also increased considerably so I am not confident that what wiped out his income for US purposes in the past will wipe it out for 2010. So my question is -

Can he take the 2010 foreign income exclusion AND take a credit for the income taxes he paid in Europe?

Thanks in advance.

Chris A Johnson, EA

Reply to
caj111
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Yes, but NOT with respect to the same items. A taxpayer may not claim FTC based on an excluded item.

Reply to
D. Stussy

You may want to run the figures two ways... only taking the FTC, then taking FIE with a FTC on the income in excess of the FIE. Sometimes, only taking FTC is better but it depends on the situation. The returns I prepare are such that only taking FTC is generally the better option.

Reply to
parrisbraeside

As indicated above, you should run the numbers both ways. Note that if it turns out the FTC is the better deal, and your client gives up the FEI exclusion, it would be five years before he can re-elect it, so you should run a projection that includes a full-year of the new job,. If your client is also subject to state income tax, you should include that in your analysis. Under the regimen now in place for the FEI exclusion, there can be significantly higher tax than used to be the case.

Reply to
Tom Healy CPA

Also, I think the amount above the FEIC will be taxed at the higher rate. Say the FEIC is 90k and you make 100k, so only 10k is taxed, but it is taxed at 28% (or whatever) rather than 10%. Or at least that's how I think it works.

Reply to
removeps-groups

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