Can anyone help with a question about the foreign tax credit? I've tried searching the forums and couldn't find anything similar.
Essentially, I am wondering if it is possible to choose how much credit is applied, because my tax software is suggesting that I need to take the entire credit available even though I can already reduce my tax liability to zero with another credit.
To put some fake numbers on what I am describing:
Taxes due before applying credits: 800
Foreign tax credit possible: 1000
Child tax credit possible: 2000
The tax software says I would need to apply 800 of the foreign tax credit in the current year, even though the child tax credit is already larger than the 800 due. I would rather carry over the entire 1000 foreign tax credit to the following year and let the child tax credit cancel the taxes due in the current year.
Has anyone else been in this situation and know if it's possible to do this?
Two things you should know, assuming you are referring to your US taxes: 1) You don’t want to refuse foreign tax credit as that can affect your eligibility in subsequent years, 2) you need to apply the foreign tax credit first and then you can apply the child tax credit to the remainder, which in your case is 0. You can then roll over the residual foreign tax credit (200) for a future year because you have theoretically already paid that tax to a foreign government, but you can’t roll the whole thing over because you would prefer to exercise your child tax credit; it doesn’t work that way. So the software is correct.
This is unfortunately the conclusion I came to as well, even if it isn't what I wanted to hear.