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Doing taxes by both Turbotax (TT) and TaxAct (TA), I get different answers to my relatively simple situation. Here is the summary of their respective calculations:

line# Entry Turbotax TaxAct
1 wages 53191
2 div 13320 13320
3 int 281 281
4 capgains 24 24
5 feie -53191 -53191
6 subtotal 13625 -39566
7 deductions -12950 -12950
8 taxable inc 675 0
9 taxes 101 0
10 foreign tax credit -76
11 taxes due 25

The main difference is line 1 wherein TT records my (foreign self-employed) wages and then subtracts FEIE in line 5, while TA doesn't record my wages (line 1/TA is blank) but subtracts FEIE in line 5. As a result, line 6 (a subtotal that I have inserted) is +13K for TT but -39K for TA. Then they both apply the deduction resulting in a positive taxable income for TT and 0 for TA. Additionally, for whatever reason, TA doesn't give me a foreign tax credit (for foreign tax deducted from a mutual fund's distribution) but TT does. Finally, I am left with a tax due of 25 via TT and 0 via TA. So who is correct?

But more conceptually, do I first report my foreign income and then deduct it via FEIE (as TT does) or do I not report it as it is not US income, and yet deduct it (as TA does). In my mind, TT is correct, because you can only deduct something if you first declare it. But I have gone through the TA entries a few times and can't figure out how to make it record my wages first and then deduct them. In other words, I don't know if I am doing something wrong or TA is doing it wrong.

I'd rather use TA because it is substantially cheaper than TT, but maybe this is a classic case of "I get what I pay for."

I read the following thread which sadly did not answer my query

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  • Looks to me as if TaxAct either gave you the wrong instructions or you misread its instructions... or it has a bug. But not having used TaxAct, I can't suggest specifics. I presume you have already searched the product's docs and support for details on how to enter foreign income?
    – keshlam
    Commented Apr 8, 2023 at 13:03
  • Shouldn't self-employment income be reported in Schedule C (business income) and Schedule SE (self-employment tax), not under "wages"?
    – user102008
    Commented Apr 8, 2023 at 16:03
  • It is very likely that I have done something wrong. But the fundamental concept still needs to be cleared (for me)… should foreign income be reported first (somewhere) and then and only then claimed as FEIE?
    – punkish
    Commented Apr 8, 2023 at 16:07
  • If you have a foreign mutual fund, let me tell you about PFIC...
    – littleadv
    Commented Apr 8, 2023 at 18:07
  • 1
    :) I have intentionally steered clear of foreign mutual funds… in fact, any kind of foreign investments, just because of the notoriety of PFICs, probably losing a lot of potential investment growth as a result.
    – punkish
    Commented Apr 9, 2023 at 11:37

1 Answer 1

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But more conceptually, do I first report my foreign income and then deduct it via FEIE (as TT does) or do I not report it as it is not US income, and yet deduct it (as TA does).

TT is correct, you cannot deduct FEIE if you don't have income. FEIE may not cover the whole foreign income (in your case it does).

TA doesn't give me a foreign tax credit (for foreign tax deducted from a mutual fund's distribution) but TT does

TT seems to be correct here as well. But be careful: tax credit should be allocated to the correct income. In your case the income for which you're getting the credit is passive (mutual fund distributions), not active (your self-employment earnings) which you've excluded.

But I'd like to clarify something:

(foreign self-employed) wages

This should go to schedule C then, not line 1. Self-employment is not wages. You can still exclude it under FEIE, but you'll also need to add Schedule SE.

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  • thanks, I've marked this as the answer because it comes closest to clarifying my doubts. I actually managed to coax OLT to do the same thing as TT. The trick seems to make the software avoid double counting or under-counting. My understanding is that foreign income should still be reported on Sch C, and then an exclusion for it be claimed on 2555. All other considerations are noise (at least in my case)
    – punkish
    Commented Apr 9, 2023 at 11:48
  • Re. Sch-SE, I pay social security taxes in Spain. In the past three years, I have not paid SE taxes to the US nor have I filed the Sch-SE. I think, in theory, I should get a statement from TGSS (Spanish Social Security) that I pay SE taxes in Spain and hence am exempt from paying in the US. I don't quite know how to do that, but that is another item for research
    – punkish
    Commented Apr 9, 2023 at 11:50
  • @punkish not "foreign income should be reported on Sch C", but "self employment income should be reported on Sch. C", domestic or foreign. Re the social security taxes - follow the instructions here
    – littleadv
    Commented Apr 9, 2023 at 18:41

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