Foreign Tax Credit vs Foreign Earned Income Exclusion: Question for All

Hi, everyone.

The strong consensus seems to be that most US citizens working full-time in the UK are better off taking the Foreign Tax Credit than the Foreign Earned Income Exclusion (FEIE) because of the higher tax rates in the UK.

Two-part question for you:
-1-  Do most people who go down this road take the Foreign Tax Credit or the Itemized (Tax) Deduction?
-2-  I have heard that it is possible to take both the FEIE and FTC?  Can someone explain how this is done, assuming your only income (say, $200,000) is from your job?  Or is it not possible/feasible unless you have "passive"/investment income?

Thank you.

Each set of circumstances is different. There is no right size fits all solution.  What did you elect to do on your US return last year?

Electing to claim the foreign earned income exclusion by a UK resident only rarely saves tax overall; but even this statement will not be accurate for all circumstances; and for all of the next 10 years.

Hi guya.

I have been using TurboTax every year, but it is possible I made a mistake last year.  I will check what I elected.

Basically, I know with about 99.9pct certainty that I paid thousands of dollars more to HMRC in 2016 than I would have paid to the IRS had I lived and worked in the US, so unless I am really mistaken, I shouldn't owe any money to the IRS, correct?   

I tried both the FEIE and FTC routes last night using TurboTax, and the system told me that I would owe either $1000 or $9000 to the IRS, and this seems impossible.  Clearly, I am doing something wrong -- maybe should just call TurboTax? 

Thank you.

Two-part question for you:
-1-  Do most people who go down this road take the Foreign Tax Credit or the Itemized (Tax) Deduction?

Do you really mean "Itemised Deduction" (using Schedule A)?

It's possible one may be able to use Schedule A, but logically for most people, no one living abroad would do this.

The assumption must be you meant "Foreign Earned Income Exclusion", form 2555.

Hi guya.

I have been using TurboTax every year, but it is possible I made a mistake last year.  I will check what I elected.

Basically, I know with about 99.9pct certainty that I paid thousands of dollars more to HMRC in 2016 than I would have paid to the IRS had I lived and worked in the US, so unless I am really mistaken, I shouldn't owe any money to the IRS, correct?   

I tried both the FEIE and FTC routes last night using TurboTax, and the system told me that I would owe either $1000 or $9000 to the IRS, and this seems impossible.  Clearly, I am doing something wrong -- maybe should just call TurboTax? 

Thank you.

Are you really considering an income of $200,000? And, is that the only source of foreign income (no interest, etc.)? It's possible, but as has been said, each individual set of circumstances dictates a completely different answer depending on the types and amounts of income.

Earned income vs. unearned, housing exclusion, passive vs. general limitation basket, NIIT, HTKO, US tax rates on $200,000 (stacking rule), carryover or carry back, and on and on.

Do you really mean "Itemised Deduction" (using Schedule A)?

Yes.  You can either go down that road, or take the Credit. 

The assumption must be you meant "Foreign Earned Income Exclusion", form 2555.
Are you really considering an income of $200,000? And, is that the only source of foreign income (no interest, etc.)? It's possible, but as has been said, each individual set of circumstances dictates a completely different answer depending on the types and amounts of income.

My income is actually closer to $150,000 (I didn't want to be too specific here), but yes -- no other forms of income, interest, etc.  Would you agree something is going wrong within TurboTax?

At that level of income you might be owing tax on employer pension contributions, NIIT, AMT or some other tax. I'd suggest paying a professional to optimise and explain and then once you have learned to do it yourself next year.

Have you figured out a solution yet?