Foreign Income exclusion v foreign tax credit

Ok, the Daughter is asking, as she has to file US taxes this year on US income. She won't owe anything, and will get all her withholding back. She expects to have no future US income.

BUT, she now has UK income. It's not much. For the forseeable future it won't be a lot - certainly nowhere near the limit of the foreign earned income exclustion for decades, I would think, if ever. She has no other income.

So, the tax bit. Given that, since she has to report it to the IRS, is there a reason she would not want to just exclude the income, rather than trying to sort out Foreign Tax Credits on it?

Anytime the IRS offers a 'simplified' or 'EZ' method to calculate tax, an advantage for the taxpayer is usually sacrificed. FEIE is a simpler 'EZ' method than the FTC. In this case, the sacrifice is the carryover/carry back element and the accurate offsetting on a $ for $ basis foreign tax paid. Nonetheless, if one wishes, and it appears for the future the FEIE would always suffice with no excess income above the FEIE threshold and with passive income always remaining below the standard deduction, FEIE could be acceptable. There's nothing wrong with an EZ method provided the sacrifices are understood and accepted by the taxpayer. If circumstances change, one could switch, going forward, to the FTC method, but there is a time requirement before being allowed to switch back to FEIE at an even later date.

I helped my son do his taxes last week and he just used the FEIE, very easy to use and since he has no meaningful income other than his UK wages there is currently no reason to go through the extra complexity of FTCs.

Thanks.

It'd be many, many years (if ever) before she would be earning anywhere near the exclusion limits, and she was having a conniption fit just dealing with the f2555 form she has to file this year.  She read it, and re-read it, and it made no sense to her whatsoever. Seriously, her coffee cup was shaking in her hand. She read it to me and I only partly followed it. (I clued her over to the 2555ez form instead). The kid has three degrees, but none of them are in accounting, so... why add to the pain if it's not necessary.

She won't have any passive income - she's just starting out in her career. (More or less. It's taking a while.One more degree to go!)

Just wanted to make sure. Now she gets to learn about the UK system.  Which, actually, I'm starting to be thankful for. Of course, I have to do this year's taxes and am ready to do it, and I probably won't be so thrilled in a week when I'm done, but at least it makes sense. 

If she is like my son, with zero income from the USA after arriving in the UK then she will not need to file a self assessment with HMRC and just let PAYE take its course.  My son moved in late September 2017 and started work in November. The first couple of months PAYE was taken then when they realized what he would be earning they refunded all of it in his paycheck. Starting April 5th they then adjusted the PAYE for the year 2018/19.

She can always call HMRC to verify this.