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Tax Deductions
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Foreign Income Exclusion and Foreign Tax Credit

Hello Andrew,
With regard to the foreign income exclusion for those working overseas (who qualify), does the exclusion apply to income from the bottom up or top down? This is important when determining if the foreign tax credit may be applied to tax paid on income that is not excluded. In order to claim this credit, one must calculate the tax paid on the non-excluded income, but the determination of the amount of tax paid depends on the tax bracket to which the income is attributed (as most income tax is calculated on a graduated, progressive scale). For example, in China, where I work, the lowest income tax bracket is 10%, gradually increasing to a maximum of 45%. If I attribute non-excluded income to lower tax brackets, the tax that is attributed to this income will be much less than if I attribute the non-excluded income to higher tax brackets. I appreciate any guidance you may have in this regard.
Keith W.

Zip Code: 34667