Form 1116 or Form 2555

sarahbella · Post by **sarahbella** » Sun Mar 01, 2015 7:54 pm

My wife and I are filing MFJ for 2014. I moved here in August of that year and we were wondering for my Canadian Income should we claim foreign tax credit form 1116 or fill out form 2555 "Foreign Earned Income".

Thanks for any help, we're trying to get this done on our own

nelsona · Post by **nelsona** » Sun Mar 01, 2015 9:40 pm

2555 for your Cdn wages always works better than 1116.

CdnAmerican · Post by **CdnAmerican** » Mon Mar 02, 2015 9:56 pm

What are the rules about doing both? Does using one exclude the other?

nelsona · Post by **nelsona** » Tue Mar 03, 2015 6:55 am

AS I said, 2555 only covers wages, so you always end up using both. You would use 1116 on wages that exceed the 2555 limit.

The only "rule" is that you cannot alternate 2555 and 1116 and back. once you choose 2555 on wages and then use 1116 on wages in a subsequent year, you can't use 2555 for 5 years

MGeorge · Post by **MGeorge** » Tue Mar 03, 2015 9:35 am

...I always picture that Seinfeld episode with the Soup N%zi:
"That's it! No 2555 for you - 5 years!"

nelsona · Post by **nelsona** » Tue Mar 03, 2015 11:15 am

Really, unless you have significant income that is US-sourced, 2555 is not needed in any year. 2555 is only "simpler" to use. And it is only "simpler" if your wages are below the exemption limit.
Otherwise 1116 on everything works for cdn residents, and allows for Child tax credit, which 2555 sometimes eliminates.

So, my rule is for those living in canada, go with 1116 until you find some situation where 2555 is better (which would only be in a moving year or if you had some US income (sold a sunbelt condo for example).